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Does higher tax morale imply higher optimal labor income tax rate?

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  • Andras Simonovits

    ()
    (Institute of Economics, Research Center for Economic and Regional Studies, Hungarian Academy of Sciences, also Institute of Mathematics, Budapest University of Technology and Economics also Department of Economics, CEU)

Abstract

We analyze the impact of tax morale on the optimal progressive labor income taxation. Only universal basic income is financed from a linear tax and the financing of public goods is neglected. Each individual supplies labor and (un)declares earning, depending on his labor disutility and tax morale. Limiting the utilitarianism to the poorer parts of the population (defined by the inclusion share), the optimal tax rate is an increasing function of the tax morale and a decreasing function of the inclusion share, provide that the average wage of the included is higher than 0.54 times the average wage.

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Bibliographic Info

Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 1218.

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Length: 24 pages
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:has:discpr:1218

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Keywords: tax morale; progressive income tax; undeclared earning; labor supply; income redistribution;

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References

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  1. Doerrenberg, Philipp & Duncan, Denvil & Fuest, Clemens & Peichl, Andreas, 2012. "Nice Guys Finish Last: Are People with Higher Tax Morale Taxed More Heavily?," IZA Discussion Papers 6275, Institute for the Study of Labor (IZA).
  2. repec:att:wimass:9610 is not listed on IDEAS
  3. Sheshinski, Eytan, 1972. "The Optimal Linear Income-Tax," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 39(3), pages 297-302, July.
  4. Martin Feldstein, 1999. "Tax Avoidance And The Deadweight Loss Of The Income Tax," The Review of Economics and Statistics, MIT Press, vol. 81(4), pages 674-680, November.
  5. Cowell, Frank A. & P.F. Gordon, James, 1988. "Unwillingness to pay : Tax evasion and public good provision," Journal of Public Economics, Elsevier, Elsevier, vol. 36(3), pages 305-321, August.
  6. Alberto Alesina & George-Marios Angeletos, 2004. "Fairness and Redistribution," NajEcon Working Paper Reviews 122247000000000306, www.najecon.org.
  7. Raj Chetty, 2008. "Is the Taxable Income Elasticity Sufficient to Calculate Deadweight Loss? The Implications of Evasion and Avoidance," NBER Working Papers 13844, National Bureau of Economic Research, Inc.
  8. Barnabas M. Garay & Andras Simonovits & Janos Toth, 2011. "Local Interaction in Tax Evasion," IEHAS Discussion Papers, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences 1104, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  9. Zsombor Z. Méder & András Simonovits & János Vinczeb, 2012. "Tax Morale and Tax Evasion: Social Preferences and Bounded Rationality," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, Queensland University of Technology (QUT), School of Economics and Finance, vol. 42(2), pages 171-188, September.
  10. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 914-27, October.
  11. 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.
  12. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June.
  13. Feldstein, Martin, 1973. "On the optimal progressivity of the income tax," Journal of Public Economics, Elsevier, Elsevier, vol. 2(4), pages 357-376.
  14. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, Elsevier, vol. 1(3-4), pages 323-338, November.
  15. Frey, Bruno S. & Weck-Hanneman, Hannelore, 1984. "The hidden economy as an 'unobserved' variable," European Economic Review, Elsevier, Elsevier, vol. 26(1-2), pages 33-53.
  16. Traxler, Christian, 2006. "Social Norms and Conditional Cooperative Taxpayers," Discussion Papers in Economics, University of Munich, Department of Economics 1202, University of Munich, Department of Economics.
  17. Emmanuel Saez & Joel B. Slemrod & Seth H. Giertz, 2009. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," NBER Working Papers 15012, National Bureau of Economic Research, Inc.
  18. Romer, Thomas, 1975. "Individual welfare, majority voting, and the properties of a linear income tax," Journal of Public Economics, Elsevier, Elsevier, vol. 4(2), pages 163-185, February.
  19. Agnar Sandmo, 2012. "An evasive topic: theorizing about the hidden economy," International Tax and Public Finance, Springer, Springer, vol. 19(1), pages 5-24, February.
  20. Andras Simonovits, 2011. "Higher tax morale implies a higher optimal income tax rate," IEHAS Discussion Papers, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences 1137, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  21. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 38(114), pages 175-208, April.
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Cited by:
  1. Andras Simonovits, 2013. "A family of simple paternalistic transfer models," IEHAS Discussion Papers, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences 1324, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  2. Zoltan Imre Nagy & Viktor Valo, 2013. "The Lawful Execution Of Employer Rights Is An Important Subsystem Of Corporate Governance (A Labour Case Study)," DANUBE: Law and Economics Review, European Association Comenius - EACO, issue 3, pages 201-217, September.

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