Human Capital Formation and Tax Evasion

23 Pages Posted: 5 Feb 2012

See all articles by Laszlo Goerke

Laszlo Goerke

University of Trier - Institute of Labour Law and Industrial Relations in the European Union; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

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Date Written: January 31, 2012

Abstract

A strictly risk-averse individual with an exogenous gross income in period one can acquire human capital in the same period and evade taxes. Period-two income rises with educational investments in period one and can also be hidden from tax authorities. It is shown that a greater tax deductibility of educational investments and higher individual ability induce a positive correlation between tax evasion and educational investments in period two, whereas the relationship in period one is ambiguous. These theoretical predictions can explain diverse empirical findings on the correlation between education and tax evasion.

Keywords: human capital, income tax, tax evasion

JEL Classification: H240, H260, I200

Suggested Citation

Goerke, Laszlo, Human Capital Formation and Tax Evasion (January 31, 2012). CESifo Working Paper Series No. 3719, Available at SSRN: https://ssrn.com/abstract=1998047

Laszlo Goerke (Contact Author)

University of Trier - Institute of Labour Law and Industrial Relations in the European Union ( email )

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