Journal Article

A General Characterization of Optimal Income Tax Enforcement

Parkash Chander and Louis L. Wilde

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 65, issue 1, pages 165-183
Published in print January 1998 | ISSN: 0034-6527
Published online January 1998 | e-ISSN: 1467-937X | DOI:
A General Characterization of Optimal Income Tax Enforcement

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This paper develops a general approach to characterizing optimal income tax and enforcement schemes. Our analysis clarifies the nature of the interplay between tax rates, audit probabilities and penalties for misreporting. In particular, it is shown that for a variety of objective functions for the principal the optimal tax schedule is in general concave (at least weakly) and monotonic; the marginal tax rates determine the audit probabilities; and less harsh penalties lead to higher enforcement costs. Our results imply that there exists a tradeoff between equity and efficiency considerations in the enforcement context which is similar to that in the moral hazard context for tax policy.

Journal Article.  0 words. 

Subjects: Economics

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