We study optimal income taxation in a framework where one's willingness to report his income truthfully is positively correlated with his type. We show that allowing low-productivity types to cheat leads to Pareto-superior outcomes as compared to deterring them, even if audits can be performed...

We examine the optimal auditing problem of a tax authority when taxpayers can choose both to evade and avoid. For a convex penalty function the incentive-compatibility constraints may bind for the richest taxpayer and at a positive level of both evasion and avoidance. The audit function is...

The journalistic scandal that reached the headlines with the iconoclastic expression “LuxLeaks” has raised an EU wide debate about national tax administrations' advance ruling practices and it calls for a need to establish the acceptable boundaries between fair and harmful tax competition in...

It is well known that the government’s complete failure to enforce a law can nullify that law. But what are the effects of partial enforcement? This Article shows that imperfect enforcement can alter the de facto content of the written law in predictable and beneficial ways. Specifically, in...

We study a tax evasion response to car taxes in Finland, where used car importers overstate the mileage to reduce tax liability. First, we develop a tax evasion measure by comparing reported mileage upon import with subsequent information from vehicle inspections, and find that a decline in...

This study approaches the theme of shadow economy with special attention on tax evasion within European Union. Our aim is to highlight the dynamics of tax evasion, its causes and effects. The possibilities and mostly the difficulties to quantify the tax evasion are emphasized. Tax burden is...

We provide a unified analysis of taxation and taxpayer education when individuals have an incomplete understanding of a complex tax system. The analysis is independent of whether income is earned legitimately, or by avoiding or evading taxes. In this sense, learning about tax minimization...

This paper investigates whether tax evasion can be beneficial for an optimal income tax schedule. Past theoretical discussions have presented mixed outcomes as to whether allowing taxpayers to opt into uncertainty could indeed enhance overall tax revenues. In this study, we conducted an original...

In many countries, including the US, UK and China, households need to pay additional taxes or fees for their second homes, and some choose to avoid such property taxes through voluntary marriage distortions - e.g., by delaying marriage or by divorce. We develop a novel theoretical framework to...