The excess burden of tax evasion - An experimental detection-concealment contest
Date
2009
Authors
Bayer, R.
Sutter, M.
Editors
Advisors
Journal Title
Journal ISSN
Volume Title
Type:
Journal article
Citation
European Economic Review, 2009; 53(5):527-543
Statement of Responsibility
Ralph-C. Bayer and Matthias Sutter
Conference Name
Abstract
Tax evasion may cause social welfare losses due to the incentives of taxpayers to invest in the concealment and of tax authorities to invest in the detection of tax evasion. Reducing the investment of both parties at the same time would then lead to a Pareto improvement. Given that concealment and detection costs are hardly measurable in reality, we show in a controlled laboratory experiment that the welfare losses from a concealment-detection contest depend positively on the prevailing tax rate, but not on the penalty which is imposed in case of detected tax evasion. Hence, policy makers who are concerned about socially inefficient concealment and enforcement costs should focus on tax rates rather than penalty rates. © 2008 Elsevier B.V. All rights reserved.