Since about 40 years the Laffer curve is used to investigate tax evasion in different ways and with different results. In this paper we present, using a critical literature review, the main considerations related to the Laffer curve starting from historically oldest theoretical models and empirical studies, through direct empirical estimations of the Laffer curve to, widely used nowadays, general equilibrium models, in particular endogenous growth models. We show, by discussing the advantages and drawbacks of these approaches, their different usefulness in studying tax evasion. We conclude that currently endogenous growth models, particularly DSGE models, provide an appropriate approach for the analysis of tax evasion using the Laffer curve.
Opublikowane | Published
The evolution of the Laffer curve as a framework for studying tax evasion: from simple theoretical to DSGE models (Przeczytaj streszczenie | Read abstract)
W toku | Work in progress
Corporate Governance, Taxation and Business Cycles (Przeczytaj streszczenie | Read abstract)
We present an agency model of corporate tax auditing by a residual claimant government and embed it into a macro model with financial constraints. In our economy, entrepreneurs with access to risky investment technologies raise funds by issuing equity claims to new capital. Information asymmetries create incentives to choose a riskier but cheaper technology that provides private benefits and opportunities to evade taxes. Random auditing by the government for tax verification reveals technology choice, reducing the asymmetric information problem between lenders and borrowers. We show that moderate corporate governance quality accompanied by high taxes raise output, investment and consumption.
Non-technical summary: Unintended consequences of Mr Taxman
Striking a balance: optimal tax policy with labor market duality (Przeczytaj streszczenie | Read abstract)
We develop a dynamic general equilibrium model in which firms may evade the employer contribution component of social security taxes by offering some workers “secondary contracts”. When calibrated, the model yields estimates of secondary labor market participation consistent with empirical evidence for the EU14 countries and the US. We investigate the optimal mix of the avoidable and unavoidable components of labor taxes and analyze the fiscal and macroeconomic effects of bringing the composition to the welfare optimum. We find that partial labor tax evasion makes tax revenues more elastic, but full tax compliance need not be a welfare enhancing policy mix.