THE ECONOMICS OF TAX AMNESTIES

This paper examines some of the economic implications of tax amnesties. We present a model where individuals are initially uncertain about the disutility from tax evasion when they file their tax returns. If they later learn that they would like to be more honest than they have been, an amnesty gives them an opportunity to report additional income. We also show that as the probability of an amnesty rises, people report less income. As a consequence, an optimal collection policy requires the government to balance the cost of lost tax revenue against the gains from an amnesty. © 1991.