NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Tax Aversion, Optimal Tax Rates, and Indexation

Roger N. Waud

NBER Working Paper No. 2643 (Also Reprint No. r1135)
Issued in July 1988
NBER Program(s):   PE   ME

Taking account of the costs of tax evasion and avoidance activity together with the government's costs of tax enforcement it is shown that the optimal point on a stylized Laffer curve is located on the positively sloped region, not at the maximum point of the, curve. The analysis eschews the usual supply-side-type rationale for the Laffer curve and shows that such a curve can arise solely as a consequence of the optimizing tax aversion activity of a utility maximizing economic agent. The analysis further implies that indexation to inflation may be warranted by considerations of economic efficiency.

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Document Object Identifier (DOI): 10.3386/w2643

Published:

  • Public Finance, Vol. 43, No. 2, pp. 310-325, (1988). ,
  • Waud, Roger N, 1988. "Tax Aversion, Optimal Tax Rates, and Indexation," Public Finance = Finances publiques, , vol. 43(2), pages 310-25.

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