Intertemporal Resource Allocation and Income Tax Evasion

Abstract

The discrimination against saving, in favour of present consumption, due to the income tax has been studied, at least, since the late thirties and was mentioned by John Stuart Mill more than a century ago. This paper is concerned with the effect of evading such a tax on the discrimination against savings and capital accumulation. In particular, we want to study a situation in which the probability of detecting an evader is an increasing function of his accumulated evasion in the past. This is consistent with the tax authorities being stricter in the control of tax payers with a relatively high net wealth, with respect to the incomes declared.