Tax amnesties in a dynamic model of tax evasion

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Abstract

We present a dynamic model of tax evasion, where tax liabilities last for two periods and the probability of an inspection decreases with the sum of taxes evaded this period plus taxes evaded last period. We show that a tax amnesty that pardons more than the evasion penalties (an extensive amnesty) can temporarily improve compliance. Whenever the inspection technology improves, steady state compliance also improves, but the economy takes time to transit from one steady state to the other. We show that an amnesty may accelerate this transit, or even make it instantaneous if the amnesty is extensive enough. © 1999 Blackwell Publishers, Inc.
Original languageEnglish
Pages (from-to)439-463
JournalJournal of Public Economic Theory
Volume1
DOIs
Publication statusPublished - 1 Dec 1999

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