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Why Pay Taxes When No One Else Does?

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Author Info
Epstein, Gil S. () (Bar-Ilan University)
Gang, Ira N. () (Rutgers University)

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Abstract

In this paper we try to understand the phenomena whereby a large proportion of the population evades tax payments. We present a model which incorporates elements from the theory of information cascades with the standard model of tax evasion and analyze the connection between the decision of a potential tax evader, the number of tax evaders and the number caught in previous periods. General conditions exist under which any expected utility maximizing tax evaders will decide to emulate other tax evaders.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4153.

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Date of creation: Apr 2009
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Publication status: forthcoming in: Review of Development Economics
Handle: RePEc:iza:izadps:dp4153

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Related research
Keywords: uncertainty; information cascades; tax evasion;

Find related papers by JEL classification:
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Gul, Faruk & Lundholm, Russell, 1995. "Endogenous Timing and the Clustering of Agents' Decisions," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 1039-66, October. [Downloadable!] (restricted)
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  3. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May. [Downloadable!] (restricted)
  4. Myles, Gareth D. & Naylor, Robin A., 1996. "A model of tax evasion with group conformity and social customs," European Journal of Political Economy, Elsevier, vol. 12(1), pages 49-66, April. [Downloadable!] (restricted)
  5. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June. [Downloadable!] (restricted)
  6. Fishlow, Albert & Friedman, Jorge, 1994. "Tax evasion, inflation and stabilization," Journal of Development Economics, Elsevier, vol. 43(1), pages 105-123, February. [Downloadable!] (restricted)
  7. Fajnzylber, Pablo & Lederman, Daniel & Loayza, Norman, 2002. "What causes violent crime?," European Economic Review, Elsevier, vol. 46(7), pages 1323-1357, July. [Downloadable!] (restricted)
  8. Scharfstein, David S & Stein, Jeremy C, 1990. "Herd Behavior and Investment," American Economic Review, American Economic Association, vol. 80(3), pages 465-79, June.
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  9. Akerlof, George A, 1980. "A Theory of Social Custom, of Which Unemployment May be One Consequence," The Quarterly Journal of Economics, MIT Press, vol. 94(4), pages 749-75, June. [Downloadable!] (restricted)
    Other versions:
  10. Ira N. Gang & Amal Sanyal & Omkar Goswami, 1998. "Corruption, Tax Evasion and the Laffer Curve," Departmental Working Papers 199604, Rutgers University, Department of Economics. [Downloadable!]
    Other versions:
  11. Frank Flatters & W. Macleod, 1995. "Administrative corruption and taxation," International Tax and Public Finance, Springer, vol. 2(3), pages 397-417, October. [Downloadable!] (restricted)
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