Working Paper
Trading Off Tax Distortion and Tax Evasion
Wolfram F. Richter, Robin Boadway
CESifo, Munich, 2001
CESifo Working Paper No. 505
CESifo, Munich, 2001
CESifo Working Paper No. 505
![](https://cesifo.org/DocImg/cesifo_wp505.jpg?c=1689237164)
Tax evasion is modeled as a risky activity and integrated into a standard problem of optimal tax design. It is shown that there is a trade off between reducing tax evasion and reducing tax distortion. Thus it is efficient to supplement a broad-based wage tax by a tax on specific consumption if the former is evaded and the latter not. The optimal tax structure can be characterized by an explicit formula.
Keywords: Tax evasion, risk-taking, optimal taxation