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We examine the optimal auditing problem of a tax authority when taxpayers can choose both to evade and avoid. For a convex penalty function the incentive-compatibility constraints may bind for the richest taxpayer and at a positive level of both evasion and avoidance. The audit function is non-increasing in reported income, and is higher for progressive tax functions than for regressive tax functions. Higher marginal tax rates increase the incentives for non-compliance, overturning the well-known Yitzhaki paradox.
Authors
Matthew D. Rablen
Duccio Gamannossi degl’Innocenti
Working Paper details
- DOI
- 10.1920/WP.IFS.2017.1708
- Publisher
- The IFS
Suggested citation
Gamannossi degl’Innocenti, D and Rablen, M. (2017). Tax avoidance and optimal income tax enforcement. London: The IFS. Available at: https://ifs.org.uk/publications/tax-avoidance-and-optimal-income-tax-enforcement (accessed: 23 April 2024).
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