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- Title
Income tax buyouts and income tax evasion.
- Authors
Goerke, Laszlo
- Abstract
A tax buyout is a contract between tax authorities and a tax payer which reduces the marginal income tax rate in exchange for a lump-sum payment. While previous contributions have focussed on labour supply, we consider the interaction with tax evasion and show that a buyout can increase expected tax revenues. This will be the case if (1) the audit probability is constant and the penalty for evasion is a function of undeclared income or (2) the penalty depends on the amount of taxes evaded, and authorities use information about income generated by the decision about a tax buyout offer when setting audit probabilities. Since individuals will only utilise a tax buyout if they are better off, higher tax revenues imply that such contracts can be Pareto improving.
- Subjects
INCOME tax evasion; BUYOUTS; TAX rates; LUMP sum distributions (Pensions); LABOR supply; GOVERNMENT revenue; TAX auditing
- Publication
International Tax & Public Finance, 2015, Vol 22, Issue 1, p120
- ISSN
0927-5940
- Publication type
Article
- DOI
10.1007/s10797-013-9302-z