NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Tax Evasion and the Allocation of Capital

Don Fullerton, Marios Karayannis

NBER Working Paper No. 4581
Issued in December 1993
NBER Program(s):   PE

The efficiency cost of capital misallocations between the corporate sector and the noncorporate sector is typically measured using statutory tax differences. Corporate-source income tax compliance is high because of third party reporting, however, while noncorporate rental income tax compliance is low. Differential evasion thus exacerbates statutory differences and enlarges the efficiency cost. To measure this effect, we build a numerical general equilibrium model where households simultaneously choose portfolios of risky assets and fractions of income to report.

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Document Object Identifier (DOI): 10.3386/w4581

Published: Journal of Public Economics, Vol 55, no. 2 (October 1994): 257-278.

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