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Does Higher Tax Morale Imply Higher Optimal Labor Income Tax Rate?

  • Andras Simonovits

    ()

    (Hungarian Academy of Sciences)

We analyze the impact of tax morale on optimal progressive labor income taxation. Only universal basic income is financed from a linear tax and the financing of public goods is neglected. Each individual supplies labor and (un)declares earning, depending on his labor disutility and tax morale. Limiting the utilitarianism to the poorer parts of the population (defined by the inclusion share), the optimal tax rate is an increasing function of the tax morale and a decreasing function of the inclusion share, provided that the average wage of those included is higher than 0.54 times the average wage.

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Article provided by European Association Comenius - EACO in its journal DANUBE: Law and Economics Review.

Volume (Year): (2013)
Issue (Month): 2 (June)
Pages: 97-114

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Handle: RePEc:cmn:journl:y:2013:i:2:p:97-114
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  1. Agnar Sandmo, 2012. "An evasive topic: theorizing about the hidden economy," International Tax and Public Finance, Springer, vol. 19(1), pages 5-24, February.
  2. Andras Simonovits, 2011. "Higher tax morale implies a higher optimal income tax rate," IEHAS Discussion Papers 1137, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  3. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
  4. Barnabas M. Garay & Andras Simonovits & Janos Toth, 2011. "Local Interaction in Tax Evasion," IEHAS Discussion Papers 1104, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  5. Feldstein, Martin, 1973. "On the optimal progressivity of the income tax," Journal of Public Economics, Elsevier, vol. 2(4), pages 357-376.
  6. Traxler, Christian, 2006. "Social Norms and Conditional Cooperative Taxpayers," Discussion Papers in Economics 1202, University of Munich, Department of Economics.
  7. Emmanuel Saez & Joel Slemrod & Seth H. Giertz, 2012. "The Elasticity of Taxable Income with Respect to Marginal Tax Rates: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 50(1), pages 3-50, March.
  8. Alberto Alesina & George-Marios Angeletos, 2004. "Fairness and Redistribution," Levine's Bibliography 122247000000000283, UCLA Department of Economics.
  9. Philipp Doerrenberg & Denvil Duncan & Clemens Fuest & Andreas Peichl, 2012. "Nice Guys Finish Last: Are People with Higher Tax Morale Taxed more Heavily?," CESifo Working Paper Series 3858, CESifo Group Munich.
  10. Raj Chetty, 2009. "Is the Taxable Income Elasticity Sufficient to Calculate Deadweight Loss? The Implications of Evasion and Avoidance," American Economic Journal: Economic Policy, American Economic Association, vol. 1(2), pages 31-52, August.
  11. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
  12. Zsombor Z. Méder & András Simonovits & János Vincze, 2012. "Tax Morale and Tax Evasion: Social Preferences and Bounded Rationality," Working Papers 1202, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
  13. Lago-Peñas, Ignacio & Lago-Peñas, Santiago, 2010. "The determinants of tax morale in comparative perspective: Evidence from European countries," European Journal of Political Economy, Elsevier, vol. 26(4), pages 441-453, December.
  14. Cowell, Frank A. & P.F. Gordon, James, 1988. "Unwillingness to pay : Tax evasion and public good provision," Journal of Public Economics, Elsevier, vol. 36(3), pages 305-321, August.
  15. Romer, Thomas, 1975. "Individual welfare, majority voting, and the properties of a linear income tax," Journal of Public Economics, Elsevier, vol. 4(2), pages 163-185, February.
  16. Martin Feldstein, 1995. "Tax Avoidance and the Deadweight Loss of the Income Tax," NBER Working Papers 5055, National Bureau of Economic Research, Inc.
  17. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June.
  18. repec:eap:articl:v:42:y:2012:i:2:p:171-188 is not listed on IDEAS
  19. Sheshinski, Eytan, 1972. "The Optimal Linear Income-Tax," Review of Economic Studies, Wiley Blackwell, vol. 39(3), pages 297-302, July.
  20. Frey, Bruno S. & Weck-Hanneman, Hannelore, 1984. "The hidden economy as an 'unobserved' variable," European Economic Review, Elsevier, vol. 26(1-2), pages 33-53.
  21. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
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