Taxing Hard-to-Tax Markets

Marcelo Arbex, Enlinson Mattos and Laudo M. Ogura ()
Additional contact information
Laudo M. Ogura: Economics Department, Grand Valley State University

No 1305, Working Papers from University of Windsor, Department of Economics

Abstract: Tax enforcement costs constrain the government?s ability to observe economic transactions, giving rise to hard-to-tax (HTT) markets. In these markets transactions are untaxed and consumers are better off than in taxed markets. This paper studies a novel approach to combat evasion in HTT markets: consumer auditing, which rewards consumers for requesting transaction receipts. We develop a Hotelling-type spatial model of sales taxation to analyze the welfare and distributional effects of the implementation of this policy. We find that consumer auditing allows for a lower tax rate and greater provision of the public good in the economy. We show that this policy not only can enhance welfare, but also equalize utilities of consumers across markets.

Keywords: taxation; hard-to-tax; tax evasion. (search for similar items in EconPapers)
JEL-codes: H1 H21 H26 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2013-08
New Economics Papers: this item is included in nep-acc, nep-iue, nep-pbe and nep-pub
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http://web2.uwindsor.ca/economics/RePEc/wis/pdf/1305.pdf First version, 2013 (application/pdf)

Related works:
Working Paper: Taxing hard-to-tax markets (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:wis:wpaper:1305

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