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To Comply or not to Comply: Persistent Heterogeneity in Tax Compliance and Macroeconomic Dynamics

Author

Listed:
  • Leonardo Barros Torres
  • Jaylson Jair da Silveira, Gilberto Tadeu Lima

Abstract

We set forth an overlapping generations model in which the microdynamics of tax compliance is coupled to the macrodynamics of the economy. We specify the proportion of individuals who do not comply with their tax obligations as endogenously time-varying using the discrete choice approach, which allows considering both deterministic components and idiosyncratically subjective motivations and proclivities (such as tax morale) as drivers of tax compliance. The model replicates (and hence provides an analytical framework for a potential interpretation of) some pieces of evidence on tax evasion. First, heterogeneity in tax compliance exhibits persistence and fluctuations over the long run. Second, the proportion of non-compliant taxpayers varies positively with the tax rate and negatively with the probability of detection of tax evaders. Third, the impact of a change in the proportion of non-compliant taxpayers on the per capita output over the long run is ambiguous.

Suggested Citation

  • Leonardo Barros Torres & Jaylson Jair da Silveira, Gilberto Tadeu Lima, 2022. "To Comply or not to Comply: Persistent Heterogeneity in Tax Compliance and Macroeconomic Dynamics," Working Papers, Department of Economics 2022_04, University of São Paulo (FEA-USP).
    • Handle: RePEc:spa:wpaper:2022wpecon04
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    References listed on IDEAS

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    More about this item

    Keywords

    Tax compliance; discrete choice modeling; tax morale; heterogeneous behavior; macrodynamics;
    All these keywords.

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H40 - Public Economics - - Publicly Provided Goods - - - General
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical

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