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Taxpayer deductions and the endogenous probability of tax penalisation

Alex A. T. Rathke

Keywords: probability of tax penalisation; tax deductions; expected tax penalty
License: CC BY 4.0

Abstract: We propose a parametric specification of the probability of tax penalisation faced by a taxpayer, based on the amount of deduction chosen by her to reduce total taxation. Comparative analyses lead to a closed-form solution for the optimum tax deduction, and provide the maximising conditions with respect to the probability parameters.

Submitted to arXiv on 28 Feb. 2022