Income Tax Avoidance and Evasion

Abstract

We characterize optimal individual tax evasion and avoidance when taxpayers "narrow bracket" the joint avoidance/evasion decision by exhausting all gainful methods for legal avoidance before choosing whether or not also to evade illegally. We …nd that (i) evasion is an increasing function of the audit probability when the latter is low enough, yet tax avoidance is always decreasing in the probability of audit; (ii) an analogous …nding to the so-called Yitzhaki puzzle for evasion also holds for tax avoidance -an increase in the tax rate decreases the level of avoided income and the level of avoided tax; and (iii) that, holding constant the expected return to evasion, it is not always the case that the combined loss of reported income due to avoidance and evasion can be stemmed by increasing the …ne rate and decreasing the audit probability.JEL Classi…cation: H26, K42, D82, H21.

The Autonomous Taxation of Corporate Expenses in Portugal

“…But pure economic rationality is seen as insufficiently explanatory and is a case for including other variables in order to justify observed levels of compliance. Thus, models of tax compliance have been developed by introducing sociological and psychological factors, aiming to explain taxpayers' behaviour based on variables such as age, gender, education, income level, income source, occupation, peer influence, fairness and tax morale (Degl'Innocenti & Rablen, 2017;Hartl, Hofmann, Gangl, & Hartner-Tiefenthaler, 2015;Poppelwell, Kelly, & Wang, 2012;Swistak, 2016).…”

Marketed tax avoidance: an economic analysis∗

“…Seemingly for legacy reasons, the economic literature has focused historically more on tax evasion than tax avoidance (Gamannossi degl'Innocenti and Rablen, 2017, herefter GR2017), and more on the demand side than the supply side (Slemrod, 2002, 2004). Our analysis addresses both of these imbalances.…”