Optimal policies in the presence of tax evasion [Elektronische Ressource] / vorgelegt von Christoph Eichhorn

Christoph Eichhorn

Informations

• Publié par: ludwig-maximilians-universitat_munchen
• Publié le: 01 janvier 2006
• Nombre de lectures: 8
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

Optimal Policies in the Presence of
Tax Evasion
Inaugural-Dissertation
zur Erlangung des Grades
Doctor oeconomiae publicae (Dr. oec. publ.)
an der Ludwig-Maximilians-Universit˜at Munc˜ hen
im Jahr 2006 vorgelegt von
Christoph Eichhorn
Referent: Prof. Dr. Bernd Huber
Korreferent: Prof. Ray Rees, PhD
Promotionsabschlussberatung: 26. Juli 2006Table of Contents
Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
List of Figures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii
List of Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv
Preface. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
1 Introduction 1
2 A Short Overview on Related Literature 5
2.1 The Basic Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.2 Tax Evasion with an Endogenous Tax Base . . . . . . . . . . . . . . 15
2.3 Optimal Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.4 Further Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.5 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.A Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3 The Non-neutrality of a Proflt Tax With Cost Overreporting 27
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.2.1 Production and Evasion Decision . . . . . . . . . . . . . . . 29
3.2.2 Optimal Tax and Audit Policy . . . . . . . . . . . . . . . . . 34
3.3 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
3.A Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
4 Tax Evasion and Tax Enforcement in a Duopoly Model 47
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
4.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
4.2.1 Market Demand and Proflts . . . . . . . . . . . . . . . . . . 51
4.2.2 Tax Evasion and Optimal Prices . . . . . . . . . . . . . . . . 55
4.2.3 Nash Equilibrium . . . . . . . . . . . . . . . . . . . . . . . . 61
4.2.4 Social Optimum . . . . . . . . . . . . . . . . . . . . . . . . . 71
4.2.5 Determination of Tax and Enforcement Policy by Majority
Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
4.3 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
i4.A Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88
5 The Implications of Tax Evasion for Economic Growth 101
5.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
5.2 The Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
5.2.1 Assumptions. . . . . . . . . . . . . . . . . . . . . . . . . . . 103
5.2.2 Individual Optimum . . . . . . . . . . . . . . . . . . . . . . 107
5.2.3 The Impact on Growth . . . . . . . . . . . . . . . . . . . . . 111
5.2.4 A Welfare Maximizing Government . . . . . . . . . . . . . . 114
5.3 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
5.A Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
6 Tax Evasion and Economic Growth - An Empirical Investigation 123
6.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123
6.2 Concepts, Data and Estimations . . . . . . . . . . . . . . . . . . . . 126
6.2.1 Size Estimates of the Shadow Economy . . . . . . . . . . . . 126
6.2.2 A Proxy of Tax Evasion . . . . . . . . . . . . . . . . . . . . 127
6.2.3 Description of Data . . . . . . . . . . . . . . . . . . . . . . . 128
6.2.4 Regression Analysis . . . . . . . . . . . . . . . . . . . . . . . 133
6.3 Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
6.A Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Bibliography 151
iiList of Figures
2.1 Individual income tax evasion. . . . . . . . . . . . . . . . . . . . . . 13
2.2 Comparative statics of y w.r.t. ‡. . . . . . . . . . . . . . . . . . . . 14e
3.1 Proflt maximum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
A.2 Lafier curve. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
4.1 Marginal consumer and demand. . . . . . . . . . . . . . . . . . . . 52
4.2 Proflt maximum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
4.3 Market shares and policy if 0= ? <? <+1. . . . . . . . . . . . 700 1
4.4 Market and policy if 0 <fl <fl =+1. . . . . . . . . . . . 710 1
4.5 Lafier curves. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
4.6 Welfare improvement through reallocation of market shares. . . . . 81
6.1 Comparison of the development of GDP per capita of South Africa
and Botswana. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 124
6.2 Scatter diagrams for speciflcation 1. . . . . . . . . . . . . . . . . . . 130
6.3 for sp 2. . . . . . . . . . . . . . . . . . . 131
6.4 Scatter diagram: tax evasion in high income countries vs. residuals
of cross-section growth regression with (logarithm of) initial income,
education and life expectancy as explaining variables (speciflcation 1).132
iiiList of Tables
6.1 Descriptive statistics of regression variables. . . . . . . . . . . . . . 129
6.2 OLS regressions (speciflcation 1). . . . . . . . . . . . . . . . . . . . 134
6.3 Cross section IV regressions (speciflcation 1). . . . . . . . . . . . . . 136
6.4 Outliers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
A.5 List of investigated countries. . . . . . . . . . . . . . . . . . . . . . 140
A.6 Deflnitions and sources of variables. . . . . . . . . . . . . . . . . . . 143
A.7 Country groupings. . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
A.8 Cross section OLS regression. . . . . . . . . . . . . . . . . . . . . . 148
A.9 Cross IV regressions (speciflcation 2). . . . . . . . . . . . . . 149
ivPreface
Overview
All essays that make up this dissertation formulate economic models where some
economic agents { either individuals or flrms { may try to pay only part or even
nothing at all of their tax bill. Tax evasion and tax avoidance are phenomena
present in all societies that use taxes to flnance government expenditures. Some-
timeseverypossibleefiortismadetoreducethetaxburdenonthesideoftaxpayers.
Efiort is also present on the side of the government and the (tax) law enforcement
agency: they try to deter evasion and avoidance or at least to detect and convict
tax evaders. Each activity, evasion, av and deterrence, uses resources and
adds to the deadweight loss of a tax system.
Tax evasion, in particular, can take on difierent forms: non-declaration or under-
reporting of the tax base (which may be income, sales, wealth etc.), overreporting
of deductible expenses, moonlighting, smuggling and others. This dissertation ab-
stracts from the particular mode that is used to save on the tax bill { with the
exception of chapter 3 { and I have to disappoint the reader that tries to flnd hints
1on how he could best reduce his own tax payments. Rather the models discuss
especially how a benevolent government (the so-called social planner) could and
should react to the presence of tax evasion activities.
Ipresentashortoverviewofresearchinthefleldinchapter2. Theremainingchap-
ters present new models and results. Chapters 3 and 4 investigate the impact of
tax evasion on flrm behavior from a microeconomic perspective. Notably, I discuss
the relationship between the tax evasion and the production decision in a monop-
olistic and duopoly market and characterize optimal tax and enforcement policies.
In particular, I discuss the implications of proflt tax evasion by a monopolist for
his production decision (chapter 3). I show that there are conditions under which
even a benevolent government should not deter evasion activities completely even
if deterrence does not entail any resource costs in a duopoly model with sales tax
evasion (chapter 4). Chapters 5 and 6 deal with macroeconomic issues of tax eva-
1The Economist reports some frequently used ways of tax evasion and tax avoidance in The
Economist (2001).
vPreface
sion with a special emphasis on the relationship between tax evasion and economic
growth. I show that under some conditions tax evasion has no consequences for
long-run economic growth if the government adjusts its tax policy appropriately
(chapter 5). Nevertheless, tax evasion is an important factor that determines eco-
nomic growth in the real world as an empirical investigation shows that I provide
(chapter 6).
Structure
In detail, the structure of this dissertation is as follows:
Chapter 1 introduces and discusses some main issues in the economic theory of tax
evasion.
Chapter 2 selectively summarizes existing results on positive and normative issues
in the economic theory of tax evasion. It can be viewed as a short { and by far not
complete { survey of the literature on tax evasion that is related to the issues of
the following chapters. Therefore, it also serves as a reference point for the mod-
els that are developed and used later in the text. Contrary to other surveys like
Cowell (1985a), Pyle (1991), Andreoni et al. (1998), Franzoni (2000), Slemrod &
Yitzhaki(2002), i