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Article Dans Une Revue Scandinavian Journal of Economics Année : 2024

Welfare-improving tax evasion

Chiara Canta
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Helmuth Cremer
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Résumé

We study optimal income taxation in a two-group framework where the private cost of misreporting income is positively correlated with productivity. We show that, if high-wage types always reveal their income truthfully, letting low-wage types cheat would lead to Pareto-superior outcomes regardless of the audit costs (as compared to deterring them). When there is no cheating, redistribution takes place on first- or second-best frontiers with the low-wage types always ending up worse off than the high-wage types. Letting low-wage types conceal their income reduces the need to recourse to second-best mechanisms for redistribution. Additionally, it increases the reach of first-best redistribution to outcomes at which low-wage types are better off than high-wage types.
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Dates et versions

hal-04457538 , version 1 (14-02-2024)

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Chiara Canta, Helmuth Cremer, Firouz Gahvari. Welfare-improving tax evasion. Scandinavian Journal of Economics, 2024, 126 (1), pp.98-126. ⟨10.1111/sjoe.12539⟩. ⟨hal-04457538⟩
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