Tax avoidance and optimal income tax enforcement

Research output: Contribution to journalArticle


We examine the optimal auditing problem of a tax authority when taxpayers can choose both to evade and avoid. For a convex penalty function the incentive-compatibility constraints may bind for the richest taxpayer and at a positive level of both evasion and avoidance. The audit function is non-increasing in reported income, and is higher for progressive tax functions than for regressive tax functions. Higher marginal tax rates increase the incentives for non-compliance, overturning the well-known Yitzhaki paradox.
Original languageEnglish
Pages (from-to)36-64
Number of pages29
JournalJournal of Tax Administration
Publication statusPublished - 2017


  • Tax avoidance, Tax evasion, Optimal auditing, Tax administration


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