Does Evasion Invalidate the Welfare Sufficiency of the ETI?
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Christian Gillitzer
und
Joel Slemrod
Abstract
In an influential article, Raj Chetty (2009, “Is the Taxable Income Elasticity Sufficient to Calculate Deadweight Loss? The Implications of Evasion and Avoidance.” American Economic Journal: Economic Policy 1 (2):31–52) argues that in the presence of tax evasion the elasticity of taxable income (ETI) is no longer a sufficient statistic for the marginal efficiency cost of funds (MECF). We show that, under Chetty’s (2009, “Is the Taxable Income Elasticity Sufficient to Calculate Deadweight Loss? The Implications of Evasion and Avoidance.” American Economic Journal: Economic Policy 1 (2):31–52) risk-neutrality assumption, correctly measuring the standard MECF only requires adding detected evasion inclusive of penalties. In the more general case of risk aversion, it further requires amending the formula to address the private risk-bearing cost of tax evasion.
Acknowledgment
We would like to thank Shlomo Yitzhaki for helpful comments. Opinions expressed are those of the author, and should not be attributed to the Reserve Bank of Australia
References
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- Voting in Central Banks: Theory versus Stylized Facts
- Delinquency Reinforcement and Balance: Is Exposure to Delinquent Peers Always Risky?
- Can Polluting Firms Favor Regulation?
- Cannabis Control and Crime: Medicinal Use, Depenalization and the War on Drugs
- Coasean Quality of Regulated Goods
- Can Low-Wage Employment Help People Escape from the No-Pay – Low-Income Trap?
- Auctioning Emission Permits with Market Power
- Privatization, Unemployment, and Welfare in the Harris-Todaro Model with a Mixed Duopoly
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- Strategic CSR, Heterogeneous Firms and Credit Constraints
- Regulations to Supplement Weak Environmental Liability
- Intergenerational Educational Persistence among Daughters: Evidence from India
- A Signal of Altruistic Motivation for Foreign Aid
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