Optimal Tax Mix with Income Tax Non-compliance *

Abstract Although developing countries face high levels of income inequality, they rely more on consumption taxes, which tend to be linear and are less effective for redistribution than a non-linear income tax. One explanation for this pattern is that the consumption taxes are generally more enforceable in these economies. This paper studies the optimal combination of a linear consumption tax, with a non-linear income tax, for redistributive purposes. In our model, households might not comply with the income tax code by reporting income levels that differ from their true income. However, the consumption tax is fully enforceable. We derive a formula for the optimal income tax schedule as a function of the consumption tax rate, the recoverable elasticities, and the moments of the taxable income distribution. Our equation differs from those of JEL: D31, D63, D82, H21, H23, H26, I30, O2

Welfare Preferences from Behavioral Datasets.” Review of Economic Studies 79:375–387. Behavioral

Abstract An individual displays various preference orderings in different payoff-irrelevant circumstances. It is assumed that the variation in the observed preference orderings is the outcome of some cognitive process that distorts the underlying preferences of the individual. We introduce a framework for eliciting the individual's underlying preferences in such cases, and then demonstrate it for two cognitive processes -satisficing and small assessment errors. * We than