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Public goods, hidden income, and tax evasion: Some nonstandard results from the warm-glow model

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  • Hungerman, Daniel M.

Abstract

A large literature explores crowd out in situations where public goods are jointly provided; work in this area typically depicts a tax system where individuals take taxes as given. But in some settings, such as those in developing economies, efforts to evade or avoid taxes may be widespread. Using the canonical warm-glow model, this paper considers joint public-good provision in a setting where individuals can evade taxes by hiding their income. The model's implications change significantly in this setting: with hidden income, stronger warm glow will lead to greater crowd out, not less. Using research on crowd out and inter-family transfers, I present suggestive evidence that the model's results may help to reconcile divergent estimates of crowd out in the literature.

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  • Hungerman, Daniel M., 2014. "Public goods, hidden income, and tax evasion: Some nonstandard results from the warm-glow model," Journal of Development Economics, Elsevier, vol. 109(C), pages 188-202.
    • Handle: RePEc:eee:deveco:v:109:y:2014:i:c:p:188-202
    DOI: 10.1016/j.jdeveco.2014.04.004
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    4. Joel Slemrod & Yulia Kuchumova, 2023. "Gifts to government," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 30(2), pages 453-492, April.

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    More about this item

    Keywords

    Crowd out; Inter-family transfers; Tax evasion;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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