Black Markets and Optimal Evadable Taxation.
In a simple model of evadable indirect taxation, some surprises emerge. Because of a 'market-thinning' effect of high prices, high taxes induce multiple equilibria (low-price black markets and high-price legal markets). Further, evadability introduces a bifurcation to optimal taxation: for less effective tax administrations, the optimal tax system follows a 'cash cow' pattern, with one sector bearing all of the tax; but for relatively effective administrations, the optimum follows a slightly modified Ramsey rule. This discontinuity results from the mathematics of evasion incentives and may help explain tax reforms commonly seen over the course of economic development.
Year of publication: |
1998
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Authors: | McLaren, John |
Published in: |
Economic Journal. - Royal Economic Society - RES, ISSN 1468-0297. - Vol. 108.1998, 448, p. 665-79
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Publisher: |
Royal Economic Society - RES |
Saved in:
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