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Tax Evasion as a Disciplinary Mechanism for Fiscal Policy

  • Thomas I. Renström
Conference paper

Abstract

This paper investigates the desirability of tax evasion as a mechanism for reducing the time-inconsistency problem in fiscal policy. It endogenises the auditing rates and punishment rates and shows that when the government cannot commit to future tax rates, tolerating tax evasion is optimal. The government can, by committing to low auditing and punishment rates, limit the effectiveness of income taxes in the future. Furthermore we seek to establish which types of economies that would rely on evasion as a “disciplinary mechanism.”

Keywords

Fiscal Policy Median Voter White Worker Enforcement System Punishment Rate 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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References

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Copyright information

© Springer Japan 1998

Authors and Affiliations

  • Thomas I. Renström
    • 1
  1. 1.Department of EconomicsUniversity of BirminghamEdgbaston, BirminghamUK

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