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Title:Penalties in the theory of equilibrium tax evasion: Solving King John's problem PDF Logo
Authors:Neumärker, Bernhard
Pech, Gerald
Issue Date:2010
Series/Report no.:The Constitutional Economics Network Working Papers 01-2010
Abstract:We characterize equilibria of an income reporting game with bounded returns and no commitment where detected tax evaders are charged the maximally feasible amount. Introducing partial commitment to punishment relief eliminates multiplicity of equilibria. We identify a unique limit equilibrium where the poorest citizens evade, intermediate citizens are honest and the richest citizens are indifferent between evading and truth-telling. For small tax rates and auditing cost, committing to a discretionary punishment relief scheme increases expected tax revenue.
Subjects:Tax evasion
signaling
optimal punishment
JEL:D82
H26
K42
Document Type:Working Paper
Appears in Collections:The Constitutional Economics Network Working Papers, Universität Freiburg

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