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Income tax evasion: theoretical modeling and empirical evidence


Income tax evasion is a very important problem faced by most of the countries around the world. The phenomenon interferes with economic efficiency, socially desirable income distribution, long-run economic growth, and might even negatively affect the price stability. The intent of this study is to contribute to the economic theory of income tax evasion by demonstrating the ways to resolve the paradoxical relationship between the tax rate and compliance and to conduct various cross-model and cross-country comparisons, relying both on the theoretical and applied analysis. The study considers the intergenerational welfare implications of the recent dramatic decline in the income tax audit rate in the United States, which has been a source of big concern for many politicians, economists, and general public. It has been demonstrated that the wide-spread evasion can worsen the welfare of the generation working during the fall in the audit rate. Other issues, such as tax compliance costs and revenue-maximizing taxation have also been analyzed.


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income tax
overlapping generation
tax evasion
fines and penalties
dynamic programming


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