Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/18745 
Year of Publication: 
2005
Series/Report no.: 
CESifo Working Paper No. 1381
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
Presumptive taxation, in which an income proxy is used as tax base, has been and is still used today in countries with very diverse situations - developing, transition and developed countries. Usually, this form of taxation is thought of as a revenue-raising device in presence of widespread imperfect tax compliance. We investigate the question of whether presumptive taxation can be used as a redistributive instrument. To this end, we employ an occupational choice model in which an individual can be either an entrepreneur or a worker. We allow for different abilities to dodge taxes across social classes, and consider both the case in which a conventional income tax is in place alongside presumptive taxation and the case in which only presumptive taxation is operating. We argue that a revenue-neutral reform introducing a lump-sum presumptive tax based on occupational choice can improve social welfare, and sometimes even lead to a Pareto-improvement.
Subjects: 
tax avoidance
presumptive taxation
redistribution
occupational choice
JEL: 
H26
H21
Document Type: 
Working Paper
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