Itemised Deductions: A Device to Reduce Tax Evasion

A. Piolatto

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Abstract

Direct incentives and punishments are the most common instruments to fight tax evasion. The theoretical literature disregarded indirect schemes, such as itemised deductions, in which an agent has an interest in that other agents declare their revenue. Itemised deductions provide an incentive for consumers to declare their purchases, and this forces sellers to do the same. I show that, for any level of taxation, it is possible to increase tax proceeds by choosing the proper level of itemised deduction; the cost for the government on the consumers’ side is more than compensated by the extra proceeds on the sellers’ side.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages17
Volume2010-60
Publication statusPublished - 2010

Publication series

NameCentER Discussion Paper
Volume2010-60

Keywords

  • Tax evasion
  • itemised deductions
  • substitutes goods
  • quantity competition

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