The Costs of Taxation and the Marginal Cost of Funds

August 1, 1995

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Format: Chicago

Joel Slemrod, and Shlomo Yitzhaki. The Costs of Taxation and the Marginal Cost of Funds, (USA: International Monetary Fund, 1995) accessed September 18, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

It is argued that taxation causes three kinds of deadweight losses and two types of direct costs. The deadweight losses arise from substitution, evasion, and avoidance activities while the direct costs are administrative and compliance costs. Some of these social costs tend to be discontinuous and/or nonconvex. Because most models of taxation ignore some components of the social costs of taxation, their conclusions cannot be of a general nature. An alternative approach to policy evaluation is to rely on a marginal efficiency cost of funds rule which can indicate appropriate directions of reforms. The paper discusses its merits, applicability, and limitations, as well as its relationship to other concepts.

Subject: Compliance costs, Optimal taxation, Revenue administration, Tax administration core functions, Tax evasion

Keywords: Administrative cost, Avoidance cost, Income tax, MECF concept, Tax system, Taxpayer agent, WP

Publication Details

Pages:

32
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 1995/083
Stock No:

WPIEA0831995
ISBN:

9781451954548
ISSN:

1018-5941

Notes

Also published in Staff Papers, Vol. 43, No. 1, March 1996.

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