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| Author: | McLaren, J. |
| Title: | Black markets and optimal evadable taxation |
| Journal: | Economic Journal
1998 : MAY, VOL. 108:448, p. 665-679 |
| Index terms: | UNITED KINGDOM INFORMAL ECONOMY UNEMPLOYMENT |
| Language: | eng |
| Abstract: | In a single model of evadable indirect taxation, some surprises emerge. Because of a "market-thinning" effect of high prices, high taxes induce multiple equilibria (low-price black markets and high-price legal markets). Further, evadability introduces a bifurcation to optimal taxation: For less effective tax administrations, the optimal tax system follows a "cash cow" pattern, with one sector bearing all of the tax; but for relatively effective administrations, the optimum follows a slightly modified Ramsey rule. |
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