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Rainald Borck
''Income Tax Evasion and the Penalty Structure''
( 2004, Vol. 8 No.5 )
In the Allingham-Sandmo (AS) model of tax evasion, fines are paid on evaded income, whereas in the Yitzhaki (Y) model fines are levied on evaded tax. This note compares the two models. In the Y model, evasion is higher and tax revenue lower than in the AS model. If government seeks to maximize expected tax revenue, it would prefer penalties of the AS type if it maximizes expected voter welfare, it should choose Y type penalties. A voting model to determine the penalty structure is also considered.
JEL: H2 - Taxation, Subsidies, and Revenue: General
D7 - Analysis of Collective Decision-Making: General
Manuscript Received : Sep 20 2004 Manuscript Accepted : Oct 29 2004

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