Journal of Economics, Management and Trade

Whether or not tax evaders join tax amnesty programs, an important indicator is the influence of tax amnesty programs on compliance. To study this question, the paper sheds light on a relatively neglected but important area of prevailing tax amnesty literature in the economic analysis of tax evaders’ secondary tax evasion. Considering that people who participate in tax amnesty programs may not honestly report the whole amounts of evaded taxes, it leads to a secondary tax evasion. It is shown that even considering the risk of abstaining from tax amnesty program and incurring possible uncertainty of tax evasion penalties, participating in a tax amnesty program provides a higher level of utility for a tax evader. This result reflects the observation that many tax evaders are willing to pay taxes even when expected penalty rate and the probability of being caught evading taxes are extremely low. Also, because the secondary tax evasion is accompanied by tax amnesty, thereby it suggests that during the initial assessment period of the tax amnesty plan, tax revenue drastically increases, and then when the assessment period ends, tax revenue stably declines and ultimately converges on a fixed magnitude.