EVASION AND TIME CONSISTENCY IN THE TAXATION OF CAPITAL INCOME

Evasion and time inconsistency have been prominent concerns in discuss ions of capital income taxation, both theoretical and applied. This pa per establishes a link between them, suggesting a potentially useful r ole for evasion additional to those previously identified: by committi ng to relatively law enforcement, the government may be able to allevi ate the welfare loss implied by its inability to commit to the tau rat e. The scope for this role proves strikingly wide: it is optimal for t he government to facilitate the evasion of the capital income taxes th at it chooses to impose whenever the rime consistent tax rate exceeds that which would be optimal if the government could commit to it.