Tax Rebate and Price Discrimination

Salvatore Capasso, Salvatore Ciucci

DOI: 10.36134/CNRDSUWP-2025-2 Download as .PDF

We study the effect of a tax rebate on tax evasion, in a third – degree price discrimination framework. In such a context, the monopolist contracts with the buyers a price discount, in exchange for not issuing the transaction receipt, hiding sales revenues from tax authority. Buyers in the economy are heterogeneous only in the honesty or tax morale, and keeping the purchase receipt, they are eligible for a tax rebate. We show that a price discrimination strategy will always lead to a reduction in tax evasion. The monopolist will always choose to discriminate, the aggregate quantity produced in the economy will be unchanged, and no effect on consumption will be generated. Furthermore, we prove that the tax rebate policy is strongly affected by the distribution of tax morale among population. The tax rebate could be a sub optimal policy and could lead to a decrease in social welfare.

How to cite

Capasso S., Ciucci S. (2025). Tax Rebate and Price Discrimination (CNR-DSU Working Paper 2-25). CNR-Dipartimento di Scienze Umane e Sociali, Patrimonio culturale. https://doi.org/10.36134/CNRDSUWP-2025-2.

Last updated: 19 January 2026