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12 - Tax evasion

Published online by Cambridge University Press:  05 June 2012

Gareth D. Myles
Affiliation:
University of Exeter
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Summary

INTRODUCTION

An implicit assumption that supported the analysis of taxation in the previous chapters was that firms and consumers honestly report their taxable activities. Although acceptable for providing simplified insights into the underlying issues, this assumption is patently unacceptable when confronted with reality. The purpose of this chapter can therefore be seen as the introduction of practical constraints upon the free choice of tax policy. Tax evasion, the intentional failure to declare taxable economic activity, is pervasive in many economies as the evidence given in the following section makes clear and is therefore a subject of practical as well as theoretical interest.

After reviewing evidence on the extent of tax evasion, the chapter considers the tax evasion decision of consumers. This decision is represented as a choice under uncertainty and naturally employs the techniques of chapter 7. Within this framework, the optimal degree of auditing and of punishment is considered. This is then extended to include decisions over labour supply, since the choice of occupation can determine opportunities for evasion, and the role of public goods and social norms. The analysis predicts the relationship between the level of evasion, tax rates and punishments. The results of experiments that investigate these are discussed. A more developed analysis of the optimal choice of audit is then given. The analysis of tax evasion is then completed by consideration of evasion by firms.

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Public Economics , pp. 383 - 412
Publisher: Cambridge University Press
Print publication year: 1995

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  • Tax evasion
  • Gareth D. Myles, University of Exeter
  • Book: Public Economics
  • Online publication: 05 June 2012
  • Chapter DOI: https://doi.org/10.1017/CBO9781139170949.013
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  • Tax evasion
  • Gareth D. Myles, University of Exeter
  • Book: Public Economics
  • Online publication: 05 June 2012
  • Chapter DOI: https://doi.org/10.1017/CBO9781139170949.013
Available formats
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To save content items to your account, please confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your account. Find out more about saving content to Google Drive.

  • Tax evasion
  • Gareth D. Myles, University of Exeter
  • Book: Public Economics
  • Online publication: 05 June 2012
  • Chapter DOI: https://doi.org/10.1017/CBO9781139170949.013
Available formats
×