Imperfect Tax Compliance and the Optimal Provision of Public Goods

Abstract

Our aim in this paper is to investigate whether the presence of imperfect income tax compliance affects the optimal provision of public goods within a framework in which public expenditure is financed by a general income tax that also accomplishes redistributive goals. We first derive the income tax structure, and then a generalized Samuelson rule. We argue that, under imperfect income tax compliance, it is desirable to distort public-good supply downwards, in the sense that the sum of marginal rates of substitution between public and private consumption must exceed their marginal rate of transformation.

Kind of Black: The Musicians' Labour Market in Italy

“…We use the avoidance approach, following Slemrod (2001) among others, because it is analytically simpler; in our case, however, we do not interpret avoidance literally as depicting a situation in which there are no chances to be discovered once the cost is incurred, but as a reduced form of the evasion approach. To do so, we think of the cost of avoidance as the ‘monetary amount that the person would just be prepared to pay in order to be guaranteed that he will get away with evasion’ (Cowell, 1990a, p. 232 — see also Balestrino and Galmarini, 2003), thereby converting a problem of choice under uncertainty into an equivalent one under certainty. Finally, notice that the cost of avoidance depends, in principle, also on policy: the government decides how much effort to put into the enforcement of the tax code.…”

Kind of Black: The Musicians' Labour Market in Italy

“…We use the avoidance approach, following Slemrod (2001) among others, because it is analytically simpler; in our case, however, we do not interpret avoidance literally as depicting a situation in which there are no chances to be discovered once the cost is incurred, but as a reduced form of the evasion approach. To do so, we think of the cost of avoidance as the "monetary amount that the person would just be prepared to pay in order to be guaranteed that he will get away with evasion" (Cowell, 1990a, p. 232 -see also Balestrino and Galmarini, 2003), thereby converting a problem of choice under uncertainty into an equivalent one under certainty. Finally, notice that the cost of avoidance depends, in principle, also on policy: the government decides how much e¤ort to put into the enforcement of the tax code.…”

Tax Avoidance, Endogenous Social Norms, and the Comparison Income Effect

“…The functions defined in (3) are independent of true income, which makes the model much simpler to analyse and interpret -similar assumptions are used e.g. in Boadway et al (1994) and Balestrino and Galmarini (2003). Further, we assume that θ depends on the opinions that the agents have on whether tax avoidance should be condemned or not, that is on how strongly they feel that the social custom should be in place; we take it that each type has a preferred level of the norm and that the social norm is some function, to be defined later, of these individually ideal norms.…”