Tax Avoidance and the Optimal Design of Tax Law

32 Pages Posted: 16 Apr 2009 Last revised: 27 Sep 2014

See all articles by Philip A. Curry

Philip A. Curry

University of Waterloo

Claire A. Hill

University of Minnesota Law School

Francesco Parisi

University of Minnesota - Law School; University of Bologna

Date Written: September 26, 2014

Abstract

Although most individuals recognize the necessity of taxation, few like to pay taxes. Governments face costs to collect taxes; people expend resources to legally avoid taxation. Such expenditure represents social waste, as it is a form of rent-seeking. Since there is a market for tax planning methods, the magnitude of these costs depends on the market structure. We consider how a government might reduce tax planning by creating market inefficiencies or failures. We set forth a formal economic model to identify the optimal amount of tax planning the government should permit, and consider how governmentally-created market failures could be implemented.

Keywords: optimal taxation, tax avoidance, public goods, patents, market failure

JEL Classification: D42, H21, H26, H30, H41, K10

Suggested Citation

Curry, Philip A. and Hill, Claire Ariane and Parisi, Francesco, Tax Avoidance and the Optimal Design of Tax Law (September 26, 2014). Minnesota Legal Studies Research Paper No. 09-16, Available at SSRN: https://ssrn.com/abstract=1383645 or http://dx.doi.org/10.2139/ssrn.1383645

Philip A. Curry

University of Waterloo ( email )

Waterloo, Ontario N2L 3G1
Canada

Claire Ariane Hill

University of Minnesota Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States
612-624-6521 (Phone)

Francesco Parisi (Contact Author)

University of Minnesota - Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States

University of Bologna ( email )

Piazza Scaravilli 1
40126 Bologna, fc 47100
Italy

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