Arbeitspapier

Income tax buyouts and income tax evasion

A tax buyout is a contract between tax authorities and a tax payer which reduces the marginal income tax rate in exchange for a lump-sum payment. While previous contributions have focussed on labour supply, we consider the interaction with tax evasion and show that a buyout can increase expected tax revenues. This will be the case if (1) the audit probability is constant and the penalty for evasion is a function of undeclared income or (2) the penalty depends on the amount of taxes evaded, and authorities use information about income generated by the decision about a tax buyout offer when setting audit probabilities. Since individuals will only utilise a tax buyout if they are better off, higher tax revenues imply that such contracts can be Pareto-improving.

Language
Englisch

Bibliographic citation
Series: IAAEU Discussion Paper Series in Economics ; No. 01/2014

Classification
Wirtschaft
Asymmetric and Private Information; Mechanism Design
Taxation and Subsidies: Efficiency; Optimal Taxation
Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
Tax Evasion and Avoidance
Subject
Asymmetric information
Revenues
Self-selection
Tax buyouts
Tax evasion

Event
Geistige Schöpfung
(who)
Goerke, Laszlo
Event
Veröffentlichung
(who)
University of Trier, Institute for Labour Law and Industrial Relations in the European Union (IAAEU)
(where)
Trier
(when)
2014

Handle
Last update
10.03.2025, 11:44 AM CET

Data provider

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Object type

  • Arbeitspapier

Associated

  • Goerke, Laszlo
  • University of Trier, Institute for Labour Law and Industrial Relations in the European Union (IAAEU)

Time of origin

  • 2014

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