(a) Explain why people avoiding paying taxes.

(b) Based on the Tax Evasion model, explain the corner solutions.

(c) (i) Explain this this equationmax_{X} E[U(X)] = [1 - p]U(Y^nc) + pU(Y^c). (ii) what would happen if value of p increases. (iii) what would happen to taxpayers that avoided paying tax if the government increase the fine rate.

(d) Does honesty in paying income tax increases tax compliance rate? Explain your answer.

(25 marks)