Tax Evasion By Misinforming Withholding Agents

Abstract

This article inquires into a wage earner's decision to evade taxes by splitting his or Abstract her work efforts between several jobs while misinforming his or her employers regarding employment elsewhere. Under exact or approximate withholding by progres sive marginal rates, this behavior, accompanied by the failure to file a tax return, results in the application of lower tax brackets to earnings. This article characterizes the properties of the worker's effort allocation problem under progressive withhold ing, showing that exact withholding, considered to be more costly to administer than approximate withholding, might also be, contrary to common belief, equally and even more evadable than the latter.