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Does tax evasion affect firms’ internal control? Some evidence from an experimental approach

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  • Lory Barile

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    Abstract

    The aim of this work is to analyze tax evasion as a factor that potentially affects internal control of firms as an application of the Chen and Chu’s model (2005). For this purpose an experimental approach was employed. Treatments varied depending on whether agents were assumed to be risk-neutral or risk-averse. According to the gift-exchange game (Fehr et al., 1993), results show a positive relationship between wages offered by principal and efforts provided by agents. In general, higher wages lead to more costly effort provision. However, when evasion and risk aversion are introduced in the analysis individuals show opportunistic behaviors and they seem to be less willing to cooperate for the wealth of the firm.

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    Bibliographic Info

    Paper provided by University of Siena in its series Labsi Experimental Economics Laboratory University of Siena with number 039.

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    Date of creation: Feb 2012
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    Handle: RePEc:usi:labsit:039

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    Keywords: tax evasion; firms; reciprocity; labor market.;

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    1. Charness, Gary & Rabin, Matthew, 2001. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt4qz9k8vg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    2. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
    3. Torgler, Benno, 2003. "To evade taxes or not to evade: that is the question," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 32(3), pages 283-302, July.
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    5. Kong-Pin Chen & C.Y. Cyrus Chu, 2005. "Internal Control vs. External Manipulation: A Model of Corporate Income Tax Evasion," RAND Journal of Economics, The RAND Corporation, vol. 36(4), pages 151-164, Winter.
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    7. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 817-868, August.
    8. Crocker, Keith J. & Slemrod, Joel, 2005. "Corporate tax evasion with agency costs," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1593-1610, September.
    9. Luigi Mittone & Michele Bernasconi, 2003. "Income tax evasion and artificial reference points: two experiments," CEEL Working Papers 0305, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
    10. David Joulfaian, 2000. "Corporate Income Tax Evasion and Managerial Preferences," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 698-701, November.
    11. Alm, James & Cronshaw, Mark B & McKee, Michael, 1993. "Tax Compliance with Endogenous Audit Selection Rules," Kyklos, Wiley Blackwell, vol. 46(1), pages 27-45.
    12. Werner Güth & Wolfgang Klose & Manfred Königstein & Joachim Schwalbach, 1998. "An experimental study of a dynamic principal-agent relationship," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 19(4-5), pages 327-341.
    13. Alm, James & McKee, Michael, 2004. "Tax compliance as a coordination game," Journal of Economic Behavior & Organization, Elsevier, vol. 54(3), pages 297-312, July.
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