Taxes are major source of public funds to finance government expenditures. Tax
authorities impose different kind of taxes and employ many agents to collect taxes
effectively. Some dutiful taxpayers will undoubtedly pay their tax liabilities while
many others will not. The Internal Revenue Service in the United States reports
that the estimate of income tax liability not collected is about 17, which translates
into 345 billion for 2001. It is important to make a distinction between tax evasion
and tax avoidance. The distinguishing characteristic of evasion is illegality. Whether
the reason for not paying tax liability is avoidance or evasion, economic models of
taxation need to be changed in the light of these realities. In this study, I analyze
some of the economic problems of tax evasion/avoidance.
In the first chapter, I discuss the relationship between number of tax audits,
tax administration reform and tax compliance in Turkey. In recent years, many
developing countries have carried out reforms in their tax administration to increase
their efficiency in collecting taxes. In 2005, the tax authority in Turkey established
Tax Office Directorates (T.O.D.s) in 29 provinces for the purpose of controlling the underground economy, improving taxpayer assistance, and increasing auditing
efficiency. By using the panel data on province level tax returns, my analysis answers
two questions. First, I examine the effect of audits on reported income and reported
tax liability. By controlling for the detectibility of evasion and other socioeconomic
variables, I find that audits have the same effectiveness in increasing reported income
and reported tax liability. Second, I investigate the effect of establishing T.O.D.s in
29 provinces on compliance in those provinces. I find that T.O.D.s are effective at the
extensive margin rather than the intensive margin. Thus, establishing T.O.D.s had
no significant effect on the compliance level of existing taxpayers while it increased
the number of tax returns significantly.
In the second chapter, I analyze the excess burden on income tax when tax
avoidance matters. I present a simple static labor supply model with endogenous
asset choice. Then, I examine how tax avoidance through asset trading a ects the
labor supply response and the excess burden of income tax. Furthermore, I discuss
the implications of the tax policy analysis and show that a failure to account for
avoidance responses may lead to errors when estimating how tax reform affects labor
supply, tax revenue, and the welfare cost of taxation. Because of tax avoidance
through tax arbitrage, the progressivity of a given tax system will be less than what
the formal tax system implies.
In the third chapter,we study the Marginal Cost of Funds in the existence of
tax evasion. We develop a general equilibrium model of tax evasion, including the
expected utility of taxpayers and three different revenue-raising government policies.
In this rich model environment, we analytically derive the marginal cost of funds (MCF) for the alternative policy instruments. We consider two main fiscal reforms:
the revision in the nonlinear tax scheme and the changes in enforcement mechanism
(the audit and penalty rates). First, we derive the MCF for the tax reform and find
its key determinants. The derived MCF is greater than the previous ones since it
includes a "risk-bearing cost" as well as tax distortion. The reform in enforcement
mechanism generates MCFs in different forms. Two more MCFs with respect to
audit and penalty rates are presented. Finally, we compare these three different
MCFs in numerical example and provide some policy implications. / text
| Identifer | oai:union.ndltd.org:UTEXAS/oai:repositories.lib.utexas.edu:2152/6572 |
| Date | 20 October 2009 |
| Creators | Nagac, Abdulkadir |
| Source Sets | University of Texas |
| Language | English |
| Detected Language | English |
| Format | electronic |
| Rights | Copyright is held by the author. Presentation of this material on the Libraries' web site by University Libraries, The University of Texas at Austin was made possible under a limited license grant from the author who has retained all copyrights in the works. |
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