Taxpayer deductions and the endogenous probability of tax penalisation
Alex A.T. Rathke
TL;DR
This paper models the probability of tax penalisation as a function of deductions, deriving an optimal deduction strategy and conditions for maximising tax benefits.
Contribution
It introduces a parametric model linking deductions to penalisation probability and provides a closed-form solution for optimal deductions.
Findings
Closed-form solution for optimal tax deduction
Conditions for maximising deductions based on penalisation parameters
Analytical framework for endogenous penalisation probability
Abstract
We propose a parametric specification of the probability of tax penalisation faced by a taxpayer, based on the amount of deduction chosen by her to reduce total taxation. Comparative analyses lead to a closed-form solution for the optimum tax deduction, and provide the maximising conditions with respect to the probability parameters.
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Taxonomy
TopicsFiscal Policy and Economic Growth · Corporate Taxation and Avoidance · Taxation and Compliance Studies