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Human Capital Formation and Tax Evasion

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  • Laszlo Goerke

Abstract

A strictly risk-averse individual with an exogenous gross income in period one can acquire human capital in the same period and evade taxes. Period-two income rises with educational investments in period one and can also be hidden from tax authorities. It is shown that a greater tax deductibility of educational investments and higher individual ability induce a positive correlation between tax evasion and educational investments in period two, whereas the relationship in period one is ambiguous. These theoretical predictions can explain diverse empirical findings on the correlation between education and tax evasion.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3719.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_3719

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Keywords: human capital; income tax; tax evasion;

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  1. Bruno S. Frey & Benno Torgler, 2006. "Tax Morale and Conditional Cooperation," IEW - Working Papers 286, Institute for Empirical Research in Economics - University of Zurich.
  2. Benno Torgler & Neven Valev, 2006. "Corruption and Age," Journal of Bioeconomics, Springer, vol. 8(2), pages 133-145, August.
  3. Michael J. Boskin, 1975. "Notes on the Tax Treatment of Human Capital," NBER Working Papers 0116, National Bureau of Economic Research, Inc.
  4. Been-Lon Chen, 2003. "Tax Evasion in a Model of Endogenous Growth," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(2), pages 381-403, April.
  5. Benno Torgler & Neven T. Valev, 2010. "Gender And Public Attitudes Toward Corruption And Tax Evasion," Contemporary Economic Policy, Western Economic Association International, vol. 28(4), pages 554-568, October.
  6. Pencavel, John H., 1979. "A note on income tax evasion, labor supply, and nonlinear tax schedules," Journal of Public Economics, Elsevier, vol. 12(1), pages 115-124, August.
  7. Dubin, Jeffrey A & Graetz, Michael J & Wilde, Louis L, 1987. "Are We a Nation of Tax Cheaters? New Econometric Evidence on Tax Compliance," American Economic Review, American Economic Association, vol. 77(2), pages 240-45, May.
  8. Christiansen, Vidar, 1980. "Two Comments on Tax Evasion," Empirical Economics, Springer, vol. 13(3), pages 389-93, June.
  9. Basil Dalamagas, 2011. "A Dynamic Approach to Tax Evasion," Public Finance Review, , vol. 39(2), pages 309-326, March.
  10. Christiansen, Vidar, 1980. "Two comments on tax evasion," Journal of Public Economics, Elsevier, vol. 13(3), pages 389-393, June.
  11. Dubin, Jeffrey A. & Wilde, Louis L., 1988. "An Empirical Analysis of Federal Income Tax Auditing and Compliance," National Tax Journal, National Tax Association, vol. 41(1), pages 61-74, March.
  12. Kolml, Ann-Sofie & Larsen, Birthe, 2010. "The Black Economy and Education," Research Papers in Economics 2010:3, Stockholm University, Department of Economics.
  13. Klarita G�rxhani, 2007. "Explaining gender differences in tax evasion: the case of Tirana, Albania," Feminist Economics, Taylor & Francis Journals, vol. 13(2), pages 119-155.
  14. Torgler, Benno, 2005. "Tax morale and direct democracy," European Journal of Political Economy, Elsevier, vol. 21(2), pages 525-531, June.
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Cited by:
  1. Pickhardt, Michael & Prinz, Aloys, 2014. "Behavioral dynamics of tax evasion – A survey," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 1-19.

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