This paper provides a general equilibrium model of income tax evasion. As functions of the share of income reported, the paper contributes an analytic derivation of the tax elasticity of taxable income, the welfare cost of the tax, and government revenue as a percent of output. It shows how an...

I define a new tax instrument, the ‘deductibility rate', which specifies the proportion of eligible expenses a taxpayer may deduct when preparing her taxes. If the utilities of gross income and deductions are separable, then the deduction elasticity reflects the revenue leakage caused by...

This paper investigates the relationship between tax base distribution and tax collection rate. We approach the tax collection problem using traditional industrial organization tools. Thus, we model the tax optimization industry and investigate the impact of the change in aggregate demand on the...

What is the cost of informality? On the one hand, an informal sector creates a restriction on the set of policies that can be implemented. On the other hand, its existence offers an alternative for those for whom the benefits of formal relations do not compensate for the costs. Based on...

We model the taxation behavior of a revenue maximizing government in the presence of tax evasion by firms and the existence of a competing tax collector in the form of organized crime (the "mafia"). In order to evade taxes, the firm must shift some of its sales underground, possibly incurring...

In recent decades, market power has increased substantially, according to multiple measures that describe industry concentration, mark-ups, and business profitability. While market power can generate benefits, it also raises vexing policy concerns, including the potential for adverse effects on...

We study the joint design of nonlinear income and education taxes when the government pursues redistributive objectives. A key feature of our setup is that the ability type of an agent can affect both the costs and benefits of acquiring education. Market remuneration of agents depends on both...

Although most individuals recognize the necessity of taxation, few like to pay taxes. Governments face costs to collect taxes; people expend resources to legally avoid taxation. Such expenditure represents social waste, as it is a form of rent-seeking. Since there is a market for tax planning...

We determine the optimal income tax schedule when individuals both choose endogenously their labor supply and have the possibility of avoiding paying taxes. Considering a convex concealment cost function, we propose a formula for the optimal marginal tax rate, that generalizes the standard...