Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/273945 
Year of Publication: 
2022
Series/Report no.: 
WIDER Working Paper No. 2022/162
Publisher: 
The United Nations University World Institute for Development Economics Research (UNU-WIDER), Helsinki
Abstract: 
In an environment with extensive corruption where much of the population evades paying their full taxes due, we tackle the question of optimal taxation when constituencies with opposing objectives (the poor and the rich) push tax policy in different directions. We think in terms of a government policy-maker, here called the tax administrator (TA), and rent-seeking lobbying efforts by poor and rich constituencies. We recognize taxpayers' inter-dependency as reflected in increased evasion likelihood when others are thought to be evading. Thus, our modelling incorporates elements from the theory of information cascades (herding) into a standard model of tax evasion. The poor and rich undergo a rent-seeking contest seeking to influence the TA in setting policy so that their constituency is favoured. The TA maximizes an objective function that is a weighted average of expected social welfare, their own interests, and investment in better tax administration.
Subjects: 
tax evasion
corruption
herd behaviour
rent seeking
tax administration
poor
JEL: 
D72
G38
H26
O12
Persistent Identifier of the first edition: 
ISBN: 
978-92-9267-295-9
Document Type: 
Working Paper

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