Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/96370
Authors: 
Goerke, Laszlo
Year of Publication: 
2014
Series/Report no.: 
IAAEU Discussion Paper Series in Economics 01/2014
Abstract: 
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.
Subjects: 
Asymmetric information
Revenues
Self-selection
Tax buyouts
Tax evasion
JEL: 
D82
H21
H24
H26
Document Type: 
Working Paper

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