Journal of Public Economics 91 (2007) 1575 – 1590 www.elsevier.com/locate/econbase Efficient black markets?
Carl Davidson a,b , Lawrence Martin a , John Douglas Wilson a,⁎ a Department of Economics, Marshall-Adams Hall, Michigan State University, East Lansing, MI 48824, United States b GEP, University of Nottingham, United Kingdom
Received 17 May 2005; received in revised form 9 October 2006; accepted 23 October 2006
Available online 3 February 2007
Abstract
This paper investigates analytically the welfare effects of black-market activities that firms undertake to evade taxes. The desirability of a black market is linked to the attributes of the goods supplied by blackmarket firms. The analysis identifies cases where a
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Low-asset activities (per unit of output) self-select into the black market because the potential fine from detection is relatively low. For simplicity, the model abstracts from the myriad other considerations behind the decision to enter the black market; in particular, all firms are randomly audited for tax purposes. Following Rosen, we next assume that the tax system distorts the decision of whether to devote resources to any taxed activity. In particular, activities are ranked by a continuous parameter called “quality,” interpreted here as the attribute of a good produced by firms. Each consumer purchases at most a unit of a variable-quality good, with choices based on a heterogeneous “taste” parameter. Recognizing the costs involved in administering a quality-differentiated tax system, we assume that the government 's expenditure needs are met by taxing all variable-quality goods at a uniform statutory rate. Such a tax system causes consumers with low tastes for quality to drop out of the market — that is, they devote no resources to purchasing variable-quality goods, whereas those who remain reduce the qualities of the goods that they purchase.
With such a setup, we provide conditions that determine whether the black market consists of low- or high-quality goods. In the latter case, neither the Slemrod–Bakija nor Rosen arguments are relevant: a small black market (maintained through an appropriately low expected fine) does not distort
The validity of the tax here is related to the benefit Δ receives from access
This may be the solution to wipe out these brokers of the black market because if they have no one to prey on they will not have a choice but to find other means of income besides taking a large portion of the sellers’ payments for “hidden fees” (Resnick, B. 2012).
As of December 31, 2014, eVade had been operating its distribution center in Virginia for five years and has never collected or remitted state sales taxes as they did not believe the circumstances of their situation indicated that it was probable that they would owe back any sales tax. Although eVade estimates that if they were assessed sales tax by Virginia it would amount to $50 million in taxes, $6 million in interest, and $4 million in penalties. The following analysis will outline the proper accounting treatment for the unpaid sales taxes accrued by eVade and the accounting treatment.
they have proposed when it comes to the usage of taxes, as a way to alleviate the insurmountable
Topic Revenue neutrality Controlling the economy Encouraging industries Research and development expenditures Social considerations Earned income credit Charitable contributions Fines and penalties Home ownership Higher education incentives Tax credit versus deduction Alleviating the effect of multiple taxation Double taxation and effect of a credit versus a deduction Wherewithal to pay concept: transfer to
Now it can be shown by using equation 3.1, equation 3.6 and equation 3.9, that is shown in equation 3.10 and equation 3.11.
3. Avoiding paying for costs and expenses while acquiring assets and revenues fraudulently – this takes place in the form of avoiding paying taxes on all of the company’s earning’s and where the company liquidates an employee’s pension account and distributes the proceeds among the board members and upper management in the form of performance bonuses.
increases, but it is far more understandable when considering all the reasons for these increases.
A Federal Tax Law comprises of statutory provisions, administrative support and court decisions in certain cases. The first and foremost task of any Federal Tax Law is raising revenue for Federal and various state governments to absorb the cost of government operations. The role of social, economic, equity and political factors couldn’t be ignored while discussing various tax consequences during particular budget period. Nevertheless, the amount of revenue raised through this method decides the amount of services that the government can afford to provide. The forum topics for this week are explained in following broad heads:
When deemed appropriate, engaging in intricate financial manipulations accordingly, the perpetrators of organized crime may include corrupt business executives members of the professions, public offices, or
In both developed and underdeveloped economies, there is a need to put regulations which ensure that profits are not abnormally earned at the expense of the innocent clients. It is therefore the mandate of the territorial authorities to put in place measures that introduce checks and balances in all trades. The respective companies or business must also follow the same suit lest they find themselves in the crossroads of law. However,
equity. Reading from left to right in the second equation, the first right-hand side ratio represents the
Changes to indirect taxes in particular can have an effect on the pattern of demand for goods and services. For example, the rising value of duty on cigarettes and alcohol is designed to cause a substitution effect among consumers and thereby reduce the demand for what are perceived as “de-merit goods”. In contrast, a government financial subsidy to producers has the effect of reducing their costs of production, lowering the market price and encouraging an expansion of demand.