TY  - JOUR
AU  - Kaplow,Louis
TI  - Optimal Taxation with Costly Enforcement and Evasion
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2996
PY  - 1991
Y2  - February 1991
UR  - http://www.nber.org/papers/w2996
L1  - http://www.nber.org/papers/w2996.pdf
N1  - Author contact info:
Louis Kaplow
Harvard University
Hauser 322
Cambridge, MA  02138
Tel: 617/495-4101
Fax: 617/496-4880
E-Mail: meskridge@law.harvard.edu
AB  - This paper analyzes the relationship between optimal taxation -- where the literature considers raising revenue with minimum distortion -- and optimal tax enforcement where much of the literature emphasizes raising revenue at the least cost. A central question concerns the extent to which revenue should be raised through higher tax rates, which distort behavior, or greater enforcement, which distorts behavior because it raises marginal effective tax rates and also entails direct resource costs. It is demonstrated that, under each of several assumptions about evasion and enforcement, some expenditure on enforcement is optimal despite its resource cost, its distortionary effect, and the availability of other revenue sources having no enforcement costs. Rules for optimal tax rates and enforcement expenditures are derived, which also indicate the marginal cost of government funds and optimal enforcement priorities for a tax collection agency
ER  -