The Political Economics of Not Paying Taxes

This paper considers redistributive as well as political consequences of tax avoidance. When tax avoidance is possible, the official tax rate does not necessarily correspond to what individuals actually pay. This affects both redistributive outcomes as well as political attitudes towards taxation. D...

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Bibliographic Details
Published in:Public choice 2006-01, Vol.126 (1/2), p.107-134
Main Author: Roine, Jesper
Format: Article
Language:English
Subjects:
Attitudes
Consumption
Cost control
Distributive Justice
Economic models
Economics
Equilibrium
Estimated taxes
High income
Income Distribution
Income Inequality
Income Tax
Income taxes
Labor supply
Low income groups
Market income
Modeling
Numerical analysis
Optimal taxation
Parametric models
Political attitudes
Political economy
Politics
Public finance
Redistributive taxation
Socioeconomics
Studies
Sweden
Tax avoidance
Tax evasion
Tax rates
Taxable income
Taxation
Taxes
Taxpaying
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Summary:This paper considers redistributive as well as political consequences of tax avoidance. When tax avoidance is possible, the official tax rate does not necessarily correspond to what individuals actually pay. This affects both redistributive outcomes as well as political attitudes towards taxation. Depending on the avoidance technology different political equilibria emerge. When the avoidance possibilities are limited, the classical conflict between rich and poor is sustained. If the tax avoidance technology is more effective, however, the equilibrium outcome can change to a situation where a coalition of poor and the very richest favor a higher tax rate. Comparing the model predictions with data on income inequality and evidence of avoidance activity, it comes surprisingly close to actual observations.
ISSN:0048-5829
1573-7101
1573-7101
DOI:10.1007/s11127-006-6071-6