ABSTRACT
The problem of illegal income tax evasion has been recently considered by several authors. Allingham and Sandmo have presented a tax evasion model which analyses the individual taxpayer’s decision on whether and to what extent to avoid taxes by deliberately understating his income. Srinivasan proposed an alternative model of tax evasion which is more general in the sense that it allows for a progressive tax system. This chapter investigates the effect of tax evasion on income distribution. It discusses an alternative model of tax evasion outlined by Allingham and Sandmo in 1972, which incorporates the observed phenomenon of risk aversion in the behaviour of taxpayers.
