Plea bargaining with the IRS: extensions and further results

[[abstract]]Chu [Journal of Public Economics, 41 (1990) 319-333] proposes a tax scheme called FATOTA, under which taxpayers are given the choice between paying a fixed amount of taxes and thus being exempted from tax audit, or paying only what taxpayers claim they owe and being subject to tax audits for possible evasion. In this paper we extend Chu's finding with regard to the Pareto-improving property of FATOTA to a more general setting, including nonlinear tax/penalty schedules, complicated audit rules, and endogenous labor supply. We also show that any tax system in which the highest-income taxpayer faces audit risk and/or tax distortion can be Pareto-improved upon by the introduction of FATOTA, We relate this result to Seade's [Journal of Public Economics, 7 (1977) 203-235] celebrated finding in the optimal taxation literature that any income tax schedule with a positive marginal tax rate at the top of the scale can be replaced by another tax schedule which is strictly Pareto-improving. (C) 2001 Elsevier Science B.V. All rights reserved.[[note]]SSC

Is the Income Tax Deduction Efficient?

http://nchuae.nchu.edu.tw/tc/modules/wfdownloads/visit.php?cid=58&lid=38