Work

Catch Laffer If You Can: Tax Take in an Evasion‐Detection Game

Year: 2025

Type: article

Abstract: ABSTRACT In a simple taxation framework, we analyze a taxpayer's decision of whether to report income truthfully or engage in an evasion game with the tax agency. Specifically, taxpayer and tax agency can expend efforts, respectively, to conceal income and detect evasion. These activities are costly, and the final outcome—whether evasion is detected or not—is stochastic, and depends endogenously on the relative abilities of the contestants and on the policy parameters set by the authority. We present two main results: (i) evasion always occurs at relatively low tax rates, and then it may exhibit a U‐shaped relationship with the tax rate; (ii) at the revenue‐maximizing tax, the government's revenue is invariant to both detection efficiency and penalty rate.

Source: Journal of Public Economic Theory

DOI: 10.1111/jpet.70082

Authors: Rosaria Distefano, Francesco Reito

Institution: University of Catania

Language: English

Topic: Taxation and Compliance Studies

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: hybrid

Estimated APC paid: $3,350