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Unpublished Paper
Tax avoidance and the design of the tax structure
  • Georges Casamatta, Toulouse School of Economics

We study the optimal mix of direct and indirect taxes in the presence of tax avoidance. It is shown that a linear consumption tax is part of the optimal tax scheme, and so even when the assumptions of the Atkinson-Stiglitz theorem are not satisfied. The reason is that taxing consumption is a way to tax true income, whereas income taxation only falls on reported income. We also show that, with a weakly separable utility function and linear Engel curves, tax rates should be uniform across goods. With nonlinear Engel curves, which good should be taxed more depends on the comparison of a redistributive and an efficiency effects.

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Citation Information
Georges Casamatta. "Tax avoidance and the design of the tax structure" (2011)
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