Essays on labor income tax evasion and its relationship with income inequality and spatial distribution of public goods in Brazil

Abstract

This thesis explores the determinants of labor income tax evasion and its relationship with income inequality, tax policy, and public goods provision in Brazil. In the first part, a dynamic heterogeneous-agent model is developed to analyze how income inequality affects tax evasion and the labor income Laffer curve. Results show that evasion is highly concentrated among the richest deciles. The second part introduces a spatial dimension with endogenous location choices and region-specific public goods. Calibrated to data from the city of Fortaleza, the model shows that increasing the provision or relative weight of public goods reduces tax evasion, but with modest effects and economic tradeoffs, including lower GDP and total tax revenues. The thesis shows that both income and regional inequality significantly shape tax compliance, highlighting the limits of redistribution through public goods alone in reducing evasion.