IDEAS home Printed from https://ideas.repec.org/p/ces/ceswps/_1258.html
   My bibliography  Save this paper

Anonymous Money, Moral Sentiments and Welfare

Author

Listed:
  • Vesa Kanniainen
  • Jenni Pääkkönen

Abstract

Some markets are prone to develop shadow transactions for the purpose of tax avoidance. Moral sentiments control the allocation of consumers between the legal and illicit markets. Such sentiments include self-esteem and social disapproval. The market solution leads to fiscal externality resulting from tax avoidance and highlights the conflict between private opportunism and collective values. Shadow markets may, however, enhance consumer welfare by limiting the pricing power of firms and by controlling tax collection. The paper develops a model of endogenous segmentation of markets between moral and immoral behavior. The legal producer can price the self-esteem of honest people, who can blackmail the legal producer with their option of visiting the illicit market. The model has implications for monetary economics: moral sentiments, tax rates, illegal transactions, and probability of being caught become relevant for the demand for money.

Suggested Citation

  • Vesa Kanniainen & Jenni Pääkkönen, 2004. "Anonymous Money, Moral Sentiments and Welfare," CESifo Working Paper Series 1258, CESifo.
    • Handle: RePEc:ces:ceswps:_1258
    as

    Download full text from publisher

    File URL: https://www.cesifo.org/DocDL/cesifo1_wp1258.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Philip Cagan, 1958. "The Demand for Currency Relative to Total Money Supply," NBER Chapters, in: The Demand for Currency Relative to Total Money Supply, pages 1-37, National Bureau of Economic Research, Inc.
    2. Ken Binmore, 1998. "Game Theory and the Social Contract - Vol. 2: Just Playing," MIT Press Books, The MIT Press, edition 1, volume 2, number 0262024446, December.
    3. Acemoglu, Daron, 1995. "Reward structures and the allocation of talent," European Economic Review, Elsevier, vol. 39(1), pages 17-33, January.
    4. Cowell, F.A., 1989. "Honesty is sometimes the best policy," European Economic Review, Elsevier, vol. 33(2-3), pages 605-617, March.
    5. Ms. Era Dabla-Norris & Mr. Andrew Feltenstein, 2003. "An Analysis of the Underground Economy and its Macroeconomic Consequences," IMF Working Papers 2003/023, International Monetary Fund.
    6. Camera, Gabriele, 2001. "Dirty money," Journal of Monetary Economics, Elsevier, vol. 47(2), pages 377-415, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Franco Mariuzzo & Patrick Paul Walsh & Ciara Whelan, 2004. "EU Merger Control in Differentiated Product Industries," CESifo Working Paper Series 1312, CESifo.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Folorunsho Monsuru Ajide & James Temitope Dada & Johnson Kolawole Olowookere, 2022. "Shadow economy and foreign direct investment in Nigerian manufacturing industry," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 23(2), pages 156-180.
    2. Manamba EPAPHRA & Moga Tano JILENGA, 2017. "Currency Demand, the Subterranean Economy and Tax Evasion: The Case of Tanzania," Journal of Economic and Social Thought, KSP Journals, vol. 4(2), pages 187-211, June.
    3. Damir Piplica, 2011. "Corruption And Inflation In Transition Eu Member Countries," Economic Thought and Practice, Department of Economics and Business, University of Dubrovnik, vol. 20(2), pages 469-506, december.
    4. Marceau, Nicolas & Mongrain, Steeve, 2011. "Competition in law enforcement and capital allocation," Journal of Urban Economics, Elsevier, vol. 69(1), pages 136-147, January.
    5. Daron Acemoglu & Matthew O. Jackson, 2017. "Social Norms and the Enforcement of Laws," Journal of the European Economic Association, European Economic Association, vol. 15(2), pages 245-295.
    6. Anne Corcos & Yorgos Rizopoulos, 2011. "Is prosocial behavior egocentric? The “invisible hand” of emotions," Post-Print halshs-01968213, HAL.
    7. Laruelle, Annick & Valenciano, Federico, 2008. "Noncooperative foundations of bargaining power in committees and the Shapley-Shubik index," Games and Economic Behavior, Elsevier, vol. 63(1), pages 341-353, May.
    8. Hamid Boustanifar & Everett Grant & Ariell Reshef, 2018. "Wages and Human Capital in Finance: International Evidence, 1970–2011 [Financial reform: what shakes it? What shapes it?]," Review of Finance, European Finance Association, vol. 22(2), pages 699-745.
    9. Louis Corriveau, 2012. "Game theory and the kula," Rationality and Society, , vol. 24(1), pages 106-128, February.
    10. Stanisław Cichocki, 2008. "Shadow economy and its relations with tax system and state budget in Poland 1995 - 2007," Working Papers 2008-05, Faculty of Economic Sciences, University of Warsaw.
    11. Armagan Tuna Aktuna-Gunes & Christophe Starzec & François Gardes, 2013. "A new estimation of the size of informal economy using monetary and full expenditures in a complete demand system," Post-Print halshs-00841346, HAL.
    12. Andrea Asoni, 2008. "Protection Of Property Rights And Growth As Political Equilibria," Journal of Economic Surveys, Wiley Blackwell, vol. 22(5), pages 953-987, December.
    13. Guerino Ardizzi & Carmelo Petraglia & Massimiliano Piacenza & Gilberto Turati, 2014. "Measuring the Underground Economy with the Currency Demand Approach: A Reinterpretation of the Methodology, With an Application to Italy," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(4), pages 747-772, December.
    14. Elert, Niklas & Henrekson, Magnus, 2017. "Entrepreneurship and Institutions: A Bidirectional Relationship," Working Paper Series 1153, Research Institute of Industrial Economics, revised 05 May 2017.
    15. Nino Kokashvili & Irakli Barbakadze & Ketevani Kapanadze, 2017. "How Participating In The Shadow Economy Affects The Growth Of Latvian Firms," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 101, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    16. Ley, Eduardo, 2006. "Statistical inference as a bargaining game," Economics Letters, Elsevier, vol. 93(1), pages 142-149, October.
    17. Roy Thurik & Sander Wennekers & Ingrid Verheul & David Audretsch, 2001. "An eclectic theory of entrepreneurship: policies, institutions and culture," Scales Research Reports H200012, EIM Business and Policy Research.
    18. Piotr Dybka & Bartosz Olesiński & Marek Rozkrut & Andrzej Torój, 2023. "Measuring the model uncertainty of shadow economy estimates," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(4), pages 1069-1106, August.
    19. Friedrich Schneider & Robert Klinglmair, 2004. "Shadow economies around the world: what do we know?," Economics working papers 2004-03, Department of Economics, Johannes Kepler University Linz, Austria.
    20. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 83-116.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_1258. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Klaus Wohlrabe (email available below). General contact details of provider: https://edirc.repec.org/data/cesifde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.