Gareth D. Myles

A model of tax evasion with group conformity and social customs

Abstract A model of tax evasion is investigated in which a social custom utility is derived when taxes are payed honestly and there is a conformity payoff from adhering to the standard pattern of social behaviour. A taxpayer faces a choice between whether to evade or not and, if evasion is chosen, a straightforward choice with risk over the level of evasion. This framework reconciles the standard model of tax evasion with the social custom and conformity model and the observation that some taxpayers do not evade. The existence of social equilibria is proven and it is shown that both equilibria with no evasion and with all taxpayers choosing to evade may exist. The no-evasion equilibrium may be destroyed by a small change in the tax rate leading to epidemics of evasion after seemingly insignificant tax changes. The comparative statics of interior equilibria can explain the findings of Clotfelter (1983) and Crane and Nourzad (1986) concerning observed aggregate data on tax evasion. Predictions are also made upon how the proportion of evaders is affected by changes in the environment. A number of extensions of the basic framework are also considered and, with one exception, it is argued that these do not significantly modify the conclusion derived.

When are origin and destination regimes equivalent

A series of equivalence results are established which show that a switch from a destination regime of commodity taxation to an origin regime has no real effects. These significantly generalize those in the existing literature. Assuming uniformity of taxes within each country, equivalence applies (1) in a general competitive economy with an arbitrary (finite) number of goods and factors of production, arbitrary factor taxes, and arbitrary transport costs; (2) in an imperfectly competitive economy with any form of imperfect competition and with transport costs; and (3) in monetary economies where there is some price rigidity (such as nominal wage rigidity) as long as the exchange rate is flexible. Conditions under which nonequivalence applies are also identified and discussed.

In praise of inequality: public good provision and income distribution

Abstract It is shown that if all individuals contribute towards the provision of a public good their utilities are equalised even if the income distribution is unequal. It may seem that there is then no role for redistributive policy, but it is proved that social welfare can be raised by creating sufficient income inequality that only the rich provide public goods.

Ramsey tax rules for economies with imperfect competition

Abstract This paper derives optimal commodity tax rules for a general equilibrium model with imperfect competition. To achieve this, functions are constructed that describe the effects of taxation upon the equilibrium prices and profit levels of imperfectly competitive industries. The use of these functions allows existing tax rules to be generalised to accommodate imperfect competition.

Applications of Behavioural Economics to Tax Evasion

The paper reviews recent models that have applied the techniques of behavioural economics to the analysis of the tax compliance choice of an individual taxpayer. The construction of these models is motivated by the failure of the Yitzhaki version of the Allingham–Sandmo model to predict correctly the proportion of taxpayers who will evade and the effect of an increase in the tax rate upon the chosen level of evasion. Recent approaches have applied non-expected utility theory to the compliance decision and have addressed social interaction. The models we describe are able to match the observed extent of evasion and correctly predict the tax effect but do not have the parsimony or precision of the Yitzhaki model.

Imperfect competition and the optimal combination of ad valorem and specific taxation

While it has long been recognized that under imperfect competition ad valorem and specific taxation differ in their effects, the optimal combination of the two instruments has received little attention. This paper shows how combining the two taxes can eliminate the welfare loss due to imperfect competition by inducing profit-maximizing firms to charge the appropriate Ramsey price.

Economic Growth and the Role of Taxation - Disaggregate Data

Economic growth is the basis of increased prosperity. This makes the attainment of growth a key objective for governments across the world. The rate of growth can be affected by policy choices through the effect that taxation has upon economic decisions and through productive public expenditures. This paper surveys research that has undertaken empirical analysis of aggregate data. The focus of the survey is the identification of the factors that determine the rate of growth. La croissance economique et le role de la fiscalite – Donnees agregees La croissance economique est au fondement du progres de la prosperite. Ceci fait de la croissance un objectif majeur pour les gouvernements du monde entier. Le taux de croissance peut etre influence par des choix de politique economique relatifs a la fiscalite, laquelle a un effet sur les decisions economiques des agents et est liee aux depenses publiques productives. Cette etude resume les recherches qui ont porte sur l’analyse empirique des donnees agregees. Le but de cette etude est d’identifier les facteurs qui ont une influence sur le taux de croissance.

Economic Growth and the Role of Taxation-Theory

Economic growth is the basis of increased prosperity. This makes the attainment of growth a key objective for governments across the world. The rate of growth can be affected by policy choices through the effect that taxation has upon economic decisions and through productive public expenditures. This paper provides a self-contained introduction to the economic modelling of growth and reviews the theoretical evidence on the extent of the link between taxation and growth. La croissance economique et le role de la fiscalite - Theorie La croissance economique est au fondement du progres de la prosperite. Ceci fait de la croissance un objectif majeur pour les gouvernements du monde entier. Le taux de croissance peut etre influence par des choix de politique economique relatifs a la fiscalite, laquelle a un effet sur les decisions economiques des agents et est liee aux depenses publiques productives. Cette etude fournit une introduction autonome a la modelisation economique de la croissance et resume les resultats empiriques traitant du lien entre la fiscalite et la croissance.

On the membership of decision making committees

The decision of a committee is determined jointly by the votingprocess it adopts and the composition of its membership. The paper analyses the process through which committee members emerge from the eligiblepopulation and traces the consequences of this for the decisions ofthe committee. It is shown that the equilibrium committee will becomposed of representatives from the extremes of the tastedistribution. These extremes balance each other and the committeereaches a moderate decision. However, this mutual negation by theextremes is a socially wasteful use of time. Data from the UK Houseof Lords is used to illustrate these results.

GROWTH AND PUBLIC INFRASTRUCTURE

The paper analyzes a multicountry extension of the Barro model of productive public expenditure. In the presence of positive infrastructural externalities between countries, the provision of infrastructure will be inefficiently low if countries do not coordinate. This provides a role for a supranational body, such as the European Union, to coordinate the policies of the individual governments. It is shown how intervention by a supranational body can raise welfare by internalizing the infrastructural externality. Infrastructural externalities increase the importance of tax policy in the growth process and distribute the benefits of taxation across countries.