On the Relative Size of Direct and Indirect Tax Evasion
On the Relative Size of Direct and Indirect Tax Evasion

Summary/Abstract: Modifying the standard analytical apparatuses for direct and indirect tax evasion to incorporate forward indirect tax shift in a monopolistically competitive environment, this paper maintains that indirect tax evasion would exceed for sure direct tax evasion only under consumer risk neutrality and a tax policy zeroing the tax shift. Also, in the presence of tax evasion, there cannot be optimal direct-indirect tax mix, because tax evasion is accompanied by uncertainty and hence, nonlinearities in the tax schedules that cannot be dealt with at least practically.

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