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Tax Evasion in a Transition from Socialism to Capitalism: The Psychology of the Social Contract

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  • Vihanto, Martti

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    (BOFIT)

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    Abstract

    In a common assumption of the economics of tax evasion, extending beyond the basic Allingham-Sandmo model, the choice of a taxpayer to evade taxes depends upon the perceived fairness of the tax system. The purpose of the paper is to provide a psychological foundation for this assumption by drawing on Hayek’s theory of human behavior as a process of rule following. According to the main hypothesis, taxpayers are more compliant with tax laws to which they can in principle give their full consent. A social contract as a basis of tax policy may provide a potent means to combat tax evasion particularly in transition economies that have inherited a deep mistrust of the government from their socialist past.

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    File URL: http://www.suomenpankki.fi/bofit_en/tutkimus/tutkimusjulkaisut/dp/Documents/dp0600.pdf
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    Bibliographic Info

    Paper provided by Bank of Finland, Institute for Economies in Transition in its series BOFIT Discussion Papers with number 6/2000.

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    Length: 39 pages
    Date of creation: 06 Jul 2000
    Date of revision:
    Handle: RePEc:hhs:bofitp:2000_006

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    Postal: Bank of Finland, BOFIT, P.O. Box 160, FI-00101 Helsinki, Finland
    Phone: + 358 10 831 2268
    Fax: + 358 10 831 2294
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    Web page: http://www.suomenpankki.fi/bofit_en/
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    Keywords: tax evasion; social contract; economics of psychology; transition economies; Austrian economics;

    This paper has been announced in the following NEP Reports:

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    16. Martti Vihanto, 1998. "Using Psychology to Reinforce the Austrian Argument for Freedom: The Case of Loan Decisions," Constitutional Political Economy, Springer, vol. 9(4), pages 303-321, December.
    17. Alm, James & McClelland, Gary H & Schulze, William D, 1999. "Changing the Social Norm of Tax Compliance by Voting," Kyklos, Wiley Blackwell, vol. 52(2), pages 141-71.
    18. Fauvelle-Aymar, Christine, 1999. "The Political and Tax Capacity of Government in Developing Countries," Kyklos, Wiley Blackwell, vol. 52(3), pages 391-413.
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    23. Brian Erard & Jonathan Feinstein, 1994. "The Role of Moral Sentiments and Audit Perceptions in Tax Compliance," Carleton Industrial Organization Research Unit (CIORU) 94-03, Carleton University, Department of Economics.
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