Tax Progressivity and Tax Evasion

15 Pages Posted: 28 Jan 2004

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

Date Written: December 2003

Abstract

More progressive income taxes raise employment in models of imperfectly competitive labour markets. However, this prediction is not robust to modifications of the analytical structure. For example, in an efficiency wage setting, more progressive taxes reduce profits. This induces firms to exit the market such that the positive employment effect can vanish in a framework with a constant profit constraint. In this paper, it is demonstrated for an according model that tax evasion opportunities raise the likelihood of positive employment effects due to higher tax progressivity.

Keywords: efficiency wages, employment, income tax, tax evasion, tax progressivity.

JEL Classification: H24, H26, J41

Suggested Citation

Goerke, Laszlo, Tax Progressivity and Tax Evasion (December 2003). Available at SSRN: https://ssrn.com/abstract=479727

Laszlo Goerke (Contact Author)

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

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IZA Institute of Labor Economics

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