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Tax avoidance, endogenous social norms, and the comparison income effect

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Author Info
Alessandro Balestrino ()
Abstract

We 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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Paper provided by CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY in its series CHILD Working Papers with number wp15_09.

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Length: 28 pages
Date of creation: Jun 2009
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Handle: RePEc:wpc:wplist:wp15_09

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Related research
Keywords: tax avoidance; social norms; conformism; comparison income; median voter;

Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, 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 - - - Social Norms and Social Capital; Social Networks Economic Anthropology

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