This paper incorporates tax morale into the Allingham Sandmo (1972) model of income tax evasion. Tax morale is interpreted as a social norm for tax compliance. The norm strength, depending on the share of evaders in the society, is endogenously derived. Taxpayers act conditionally cooperative, as their evasion decision depends on the other agents' compliance. We characterize an equilibrium which accounts for this interdependence and study the impact of tax and deterrence policies on compliance. Our analysis is then extended to the case of a society which consists of heterogenous communities where individual evasion decisions are embedded in a complex social structure. In this scenario, behavior is crucially influenced by the norm compliance among morale reference groups. Within this framework, we discuss the role of belief management and belief leadership as alternative policy tools.
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Paper provided by University of Munich, Department of Economics in its series Discussion Papers in Economics with number
1202.
Find related papers by JEL classification: H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion Z13 - Other Special Topics - - Cultural Economics - - - Social Norms and Social Capital; Social Networks Economic Anthropology K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
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