Two Crises: Inflationary Inertia And Credibility  

Oleh:

McLaren, John

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Economic Journal (EBSCO) vol. 108 no. 448 (May 1998), page 680-702.
Fulltext: 680.pdf (398.32KB)

Isi artikel

In a simple model of evadable indirect taxation, some surprises emerge. Because of a `marketthinning' effect of high prices, high taxes induce multiple equilibria (low-price black markets and high-price legal markets). Further, evadability introduces a bifurcation to optimal taxation: For less effective tax administrations, the optimal tax system follows a `cash cow' pattern, with one sector bearing all of the tax; but for relatively effective administrations, the optimum follows a slightly modi®ed Ramsey rule. This discontinuity results from the mathematics of evasion incentives, and may help explain tax reforms commonly seen over the course of economic development.

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