The traditional economic model argues that risk of detection and severity of penalty are the most important constraints of income tax evasion. However, it is difficult for the tax authorities to trace unreported 'cash in hand' payments. Almost all sole traders have opportunities for such payments. However, not all of them evade by means of 'cash in hand' transactions. The present study investigates the reasons for this. A hundred and thirty-nine sole traders in the UK construction industry completed a brief questionnaire regarding their views on 'cash in hand'. Hierarchical regression analysis showed that the constraints proposed by the traditional economic model do not significantly add to the prediction of sole traders' reluctance to deal with cash earnings beyond that afforded by a 'social norm' factor. The latter included taxpayers' perceptions about: the number of opportunities for cash income, the morality of evading tax by unreported cash earnings, frequency of 'cash in hand' among colleagues, clients' suspicion towards those asking for such payments, the risk to one's professional reputation, the acceptability of cash payments, and the value of asking for cash. Findings are discussed in terms of social norms and salient social groups in the context of tax evasion.
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Paper provided by The Open University, Faculty of Social Sciences, Department of Economics in its series Open Discussion Papers in Economics with number
26.