Itemised Deductions: A Device to Reduce Tax Evasion

CentER Discussion Paper Series No. 2010-60

17 Pages Posted: 24 Jun 2010

See all articles by Amedeo Piolatto

Amedeo Piolatto

Autonomous University of Barcelona; Barcelona Economics Institute (IEB); Barcelona Graduate School of Economics (Barcelona GSE)

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Date Written: June 14, 2010

Abstract

Direct incentives and punishments are the most common instruments to fight tax evasion. The theoretical literature disregarded indirect schemes, such as itemised deductions, in which an agent has an interest in that other agents declare their revenue. Itemised deductions provide an incentive for consumers to declare their purchases, and this forces sellers to do the same. I show that, for any level of taxation, it is possible to increase tax proceeds by choosing the proper level of itemised deduction; the cost for the government on the consumers’ side is more than compensated by the extra proceeds on the sellers’ side.

Keywords: Tax evasion, itemised deductions, substitutes goods, quantity competition

JEL Classification: H, H2, H26, H3

Suggested Citation

Piolatto, Amedeo, Itemised Deductions: A Device to Reduce Tax Evasion (June 14, 2010). CentER Discussion Paper Series No. 2010-60, Available at SSRN: https://ssrn.com/abstract=1629118 or http://dx.doi.org/10.2139/ssrn.1629118

Amedeo Piolatto (Contact Author)

Autonomous University of Barcelona ( email )

Department of Economics and Economic History
Edifici B - Campus Bellaterra
Barcelona, 08193
Spain

HOME PAGE: http://https://sites.google.com/site/piolatto/

Barcelona Economics Institute (IEB) ( email )

c/ John M. Keynes, 1-11
Barcelona, 08034
Spain

HOME PAGE: http://https://sites.google.com/site/piolatto/

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

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