Tax avoidance, endogenous social norms, and the comparison income effect
AbstractWe analyse a model of income tax avoidance with heterogenous agents; we assume the presence of a comparison income e¤ect and of a psychic cost (disutility) of tax dodging. In this context, we show two sets of results. First, we study the policy preferences of the agents, and identify a median-agent political equilibrium. Paralleling previous ?ndings in the optimal taxation literature, we show that the comparison income e¤ect calls for a high degree of progressivity of the income tax; additionally, we ?nd that this tendence is strenghtened by the psychic cost of avoidance. Second, we model the endogenous formation of the stigma attached to the act of avoidance as a "conformism game", and propose a "modal-agent social equilibrium". We also argue that, in general, the stigma is motivated by the desire to make redistribution more e¤ective, as well as by the need to facilitate social competition.
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Bibliographic InfoPaper provided by CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY in its series CHILD Working Papers with number wp15_09.
Length: 28 pages
Date of creation: Jun 2009
Date of revision:
tax avoidance; social norms; conformism; comparison income; median voter;
Other versions of this item:
- Alessandro Balestrino, 2006. "Tax Avoidance, Endogenous Social Norms, and the Comparison Income Effect," CESifo Working Paper Series 1758, CESifo Group Munich.
- Alessandro Balestrino, . "Tax Avoidance, Endogenous Social Norms, and the Comparison Income Effect," EPRU Working Paper Series 05-15, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics, revised Dec 2005.
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Social and Economic Stratification
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-09-19 (All new papers)
- NEP-CDM-2009-09-19 (Collective Decision-Making)
- NEP-PBE-2009-09-19 (Public Economics)
- NEP-PUB-2009-09-19 (Public Finance)
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