Tax Avoidance, Endogenous Social Norms, and the Comparison Income Effect
AbstractWe present a model of income tax avoidance with heterogeneous agents, assuming the presence of a comparison income effect and of a psychic cost (disutility) of tax dodging. We analyse the policy preferences of the agents, and identify a median-voter political equilibrium. Paralleling previous results in the optimal taxation literature, we show that the comparison income effect calls for a high degree of progressivity of the income tax; additionally, we find that this tendence is strengthened by the psychic cost of avoidance. We then model the endogenous formation of the stigma attached to the act of avoidance as a "conformism game". We argue that such stigma is motivated by the desire to make redistribution more effective, and that it is enhanced by the income comparison effect.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1758.
Date of creation: 2006
Date of revision:
tax avoidance; social norms; conformism; comparison income; median voter;
Other versions of this item:
- Alessandro Balestrino, . "Tax Avoidance, Endogenous Social Norms, and the Comparison Income Effect," EPRU Working Paper Series 05-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Dec 2005.
- Alessandro Balestrino, 2009. "Tax avoidance, endogenous social norms, and the comparison income effect," CHILD Working Papers wp15_09, CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY.
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Social and Economic Stratification
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-08-05 (All new papers)
- NEP-PBE-2006-08-05 (Public Economics)
- NEP-POL-2006-08-05 (Positive Political Economics)
- NEP-PUB-2006-08-05 (Public Finance)
- NEP-SOC-2006-08-05 (Social Norms & Social Capital)
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