The conclusion of Peacock and Shaw's 1982 article "Tax Evasion and Tax Revenue
Loss," which has received wide attention in the literature, indicates that a rise in
tax evasion will definitely lead to lower tax collections. The present article makes a
new attempt to reexamine the Peacock and Shaw proposition by introducing the
principal tenets of the efficiency wage hypothesis. It is found that, in a context of
efficiency wage model, a rise in the degree of tax evasion may enhance total tax
collections rather than depress them.
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