Household Tax Evasion

Empirical evidence shows that both gender and household roles are significant explanatory variable for tax evasion. Why these variables matter cannot be explained by current evasion models which consider only individual choice. In this paper we study the evasion decision in a non-cooperative model of household decision making. Two members of a household choose how much to contribute to a household public good, how much self-employment income to evade, and how much income to shift between partners. We are interested in how different evasion possibilities interact with the contribution decisions to the household public good and the role of income transfers within the household. We show the household evasion decision differs from the individual decision because it affects the outcome of the household contribution game. When household members are taxed as individuals neutrality applies when choices are not constrained. If the evasion level of one household member is constrained then an income transfer can generate a Pareto improvement. When the household members are jointly taxed there is a couple constraint on strategies and corner solutions can emerge.