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Social networks and occupational choice: The endogenous formation of attitudes and beliefs about tax compliance

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  • Hashimzade, Nigar
  • Myles, Gareth D.
  • Page, Frank
  • Rablen, Matthew D.

Abstract

The paper analyses the emergence of group-specific attitudes and beliefs about tax compliance when individuals interact in a social network. It develops a model in which taxpayers possess a range of individual characteristics – including attitude to risk, potential for success in self-employment, and the weight attached to the social custom for honesty – and make an occupational choice based on these characteristics. Occupations differ in the possibility for evading tax. The social network determines which taxpayers are linked, and information about auditing and compliance is transmitted at meetings between linked taxpayers. Using agent-based simulations, the analysis demonstrates how attitudes and beliefs endogenously emerge that differ across sub-groups of the population. Compliance behaviour is different across occupational groups, and this is reinforced by the development of group-specific attitudes and beliefs. Taxpayers self-select into occupations according to the degree of risk aversion, the subjective probability of audit is sustained above the objective probability, and the weight attached to the social custom differs across occupations. These factors combine to lead to compliance levels that differ across occupations.

Suggested Citation

  • Hashimzade, Nigar & Myles, Gareth D. & Page, Frank & Rablen, Matthew D., 2014. "Social networks and occupational choice: The endogenous formation of attitudes and beliefs about tax compliance," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 134-146.
  • Handle: RePEc:eee:joepsy:v:40:y:2014:i:c:p:134-146
    DOI: 10.1016/j.joep.2012.09.002
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    References listed on IDEAS

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    Cited by:

    1. Benno Torgler, 2014. "Can Tax Compliance Research Profit from Biology?," CREMA Working Paper Series 2014-08, Center for Research in Economics, Management and the Arts (CREMA).
    2. Nigar Hashimzade & Gareth Myles & Frank Page & Matthew Rablen, 2015. "The use of agent-based modelling to investigate tax compliance," Economics of Governance, Springer, vol. 16(2), pages 143-164, May.
    3. repec:exl:22evid:v:2017:y:2017:i:1:p:- is not listed on IDEAS
    4. Benno Torgler, 2014. "Can Tax Compliance Research Profit from Biology?," QuBE Working Papers 025, QUT Business School.
    5. repec:spr:joecth:v:63:y:2017:i:4:d:10.1007_s00199-016-0976-1 is not listed on IDEAS
    6. Korndörfer, Martin & Krumpal, Ivar & Schmukle, Stefan C., 2014. "Measuring and explaining tax evasion: Improving self-reports using the crosswise model," Journal of Economic Psychology, Elsevier, vol. 45(C), pages 18-32.
    7. Matthew Gould & Matthew Rablen, 2016. "Voluntary Disclosure Schemes for Offshore Tax Evasion: An Analysis," CESifo Working Paper Series 5750, CESifo Group Munich.
    8. Pickhardt, Michael & Prinz, Aloys, 2014. "Behavioral dynamics of tax evasion – A survey," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 1-19.
    9. Duccio Gamannossi degl’Innocenti & Matthew D. Rablen, 2017. "Tax avoidance and optimal income tax enforcement," IFS Working Papers W17/08, Institute for Fiscal Studies.

    More about this item

    Keywords

    3020; 4270; Tax evasion; Attitudes; Beliefs; Endogeneity; Social network; Agent-based modelling; Bomb-crater effect;

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation

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