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Tax Morale and Tax Evasion: Social Preferences and Bounded Rationality

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Author Info

  • Zsombor Z. Méder

    ()
    (Maastricht University, Department of Economics)

  • András Simonovits

    ()
    (Hungarian Academy of Sciences, Institute of Economics, Budapest University of Technology and Economics, Institute of Mathematics and Central European University, Department of Economics)

  • János Vinczeb

    ()
    (Central European University, Department of Economics)

Abstract

We study a family of models of tax evasion, where a flat-rate tax finances only the provision of public goods, neglecting audits and wage differences. We focus on the comparison of two modeling approaches. The first is based on optimizing agents, who are endowed with social preferences, their utility being the sum of private consumption and moral utility. The second approach involves agents acting according to simple heuristics. We find that while we encounter the traditionally shaped Laffer-curve in the optimizing model, the heuristics models exhibit (linearly) increasing Laffercurves.

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Bibliographic Info

Article provided by Queensland University of Technology (QUT), School of Economics and Finance in its journal Economic Analysis and Policy (EAP).

Volume (Year): 42 (2012)
Issue (Month): 2 (September)
Pages: 171-188

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Handle: RePEc:eap:articl:v:42:y:2012:i:2:p:171-188

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Keywords: Tax evasion; Tax morale; Agent-based simulation;

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References

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  1. Sascha Hokamp & Michael Pickhardt, 2010. "Income Tax Evasion in a Society of Heterogeneous Agents - Evidence from an Agent-based Model," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 541-553.
  2. Frey, Bruno S. & Torgler, Benno, 2007. "Tax morale and conditional cooperation," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 136-159, March.
  3. Zsolt Darvas, 2010. "The Case for Reforming Euro Area Entry Criteria," IEHAS Discussion Papers 1022, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  4. Zsolt Darvas, 2008. "Leveraged Carry Trade Portfolios," IEHAS Discussion Papers 0822, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  5. Jean Pisani-Ferry & Zsolt Darvas, 2010. "The threat of 'currency wars': a European perspective," Policy Contributions 461, Bruegel.
  6. Traxler, Christian, 2006. "Social Norms and Conditional Cooperative Taxpayers," Discussion Papers in Economics 1202, University of Munich, Department of Economics.
  7. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
  8. Zsolt Darvas, 2010. "Beyond the Crisis: Prospects for Emerging Europe," Working Papers 1005, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest, revised 09 Mar 2011.
  9. Zsolt Darvas, 2009. "The impact of the crisis on budget policy in Central and Eastern Europe," Working Papers 318, Bruegel.
  10. Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers 004, Institute for Empirical Research in Economics - University of Zurich.
  11. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
  12. Zsolt Darvas, 2011. "Exchange Rate Policy and Economic Growth after the Financial Crisis in Central and Eastern Europe," Working Papers 1103, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
  13. Garay, Barnabás M. & Simonovits, András & Tóth, János, 2012. "Local interaction in tax evasion," Economics Letters, Elsevier, vol. 115(3), pages 412-415.
  14. M. Rabin, 2001. "Incorporating Fairness into Game Theory and Economics," Levine's Working Paper Archive 511, David K. Levine.
  15. Gabor Kezdi & Gergely Csorba, 2011. "Estimating the Lock-in Effects of Switching Costs from Firm-Level Data," IEHAS Discussion Papers 1108, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  16. Zsolt Darvas, 2008. "Estimation Bias and Inference in Overlapping Autoregressions: Implications for the Target-Zone Literature," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(1), pages 1-22, 02.
  17. Zsolt Darvas & Jean Pisani-Ferry & André Sapir, 2011. "A Comprehensive Approach to the Euro-Area Debt Crisis," Working Papers 1101, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
  18. Andras Simonovits, 2010. "Tax Morality and Progressive Wage Tax," IEHAS Discussion Papers 1005, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  19. Lago-Peñas, Ignacio & Lago-Peñas, Santiago, 2010. "The determinants of tax morale in comparative perspective: Evidence from European countries," European Journal of Political Economy, Elsevier, vol. 26(4), pages 441-453, December.
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Citations

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Cited by:
  1. Hokamp, Sascha, 2014. "Dynamics of tax evasion with back auditing, social norm updating, and public goods provision – An agent-based simulation," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 187-199.
  2. Pickhardt, Michael & Seibold, Goetz, 2011. "Income tax evasion dynamics: Evidence from an agent-based econophysics model," CAWM Discussion Papers 53, Center of Applied Economic Research Münster (CAWM), University of Münster.
  3. Andras Simonovits, 2012. "Does higher tax morale imply higher optimal labor income tax rate?," IEHAS Discussion Papers 1218, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  4. Pickhardt, Michael & Prinz, Aloys, 2014. "Behavioral dynamics of tax evasion – A survey," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 1-19.
  5. Barnabas M. Garay & Andras Simonovits & Janos Toth, 2011. "Local Interaction in Tax Evasion," IEHAS Discussion Papers 1104, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.

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