Date of This Version

11-14-2025

Abstract

This study extends the theory of tax evasion by presenting a model of collaborative tax evasion between buyers and sellers. Buyers differ only in their level of tax morale, and tax evasion occurs when the seller fails to issue a receipt for the transaction. To counteract this, the government can disrupt the collusion between sellers and buyers by offering a tax rebate to buyers who request and retain the transaction receipt. The theoretical findings show that the tax rebate introduces a policy trade-off for the government between aggregate quantity and tax revenue. Furthermore, the marginal effect of the rebate on aggregate quantity, tax revenue, and social welfare is ambiguous. This study provides a theoretical foundation for understanding and managing the economic inefficiencies that may arise from tax rebate policies.

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