Black Markets and Optimal Evadable Taxation
Bibliographic Data
| ID | 9720310 |
|---|---|
| Authors | John Mclaren (0000-0003-1030-9880, Columbia University, corresponding author) |
| Year | 1998 |
| Volume | 108 |
| Issue | 448 |
| Pages | 665-679 |
| Publication date | 1998-05-01 |
| Peer Reviewed | Yes |
| Open Access | Yes |
| Type | ARTICLE |
| Venue | The Economic Journal (JOURNAL) |
| Journal identifiers | ISSN: 0013-0133 • E-ISSN: 1468-0297 |
| Publisher | Oxford University Press (OUP) (PUBLISHER) |
| DOI | 10.1111/1468-0297.00308 |
| OpenAlex | W2092889284 |
| Language | EN |
| Citations received | 2 |
| References cited | 12 |
A simple model of indirect taxation, evasion, and enforcement is presented in which some surprising results emerge. Because of a " ̃market-thinning' effect of high prices, high taxes lead to multiple equilibria (low-price black markets and high-price legal markets), and black-market comparative statics tend to give the " ̃wrong' sign. Further, the incentive compatibility constraint for tax compliance is shown to confer a kind of concavity on enforcement costs. As a result, enforcement costs may be minimized by tax rates that vary dramatically between sectors. This consideration is dominant for relatively ineffective tax administrations, so for them the optimal tax system follows a " ̃cash cow' pattern, with one sector bearing all of the tax; but for relatively effective administrations, the optimum follows a slightly modified Ramsey rule. This bifurcation of the parameter space provides one approach to a positive theory of tax systems
Cash · Economics · Incentive · Macroeconomics · Microeconomics · Monetary economics · Optimal tax · Fiscal Policy and Economic Growth · Gender, Labor, and Family Dynamics · Taxation and Compliance Studies
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| Citation velocity | historical |
|---|---|
| Highly cited | No |