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The Excess Burden of Tax Evasion: An Experimental Detection-Concealment Contest

Author

Listed:
  • Ralph-C Bayer

    (School of Economics, University of Adelaide)

  • Matthias Sutter

    (Max Planck Institute for Research into Economic Systems
    University of Innsbruck)

Abstract

We present an experimental study on the wasted resources associated with tax evasion. This waste arises from taxpayers and tax authorities investing costly effort in the concealment and detection of tax evasion. We show that these socially inefficient efforts - as well as the frequency of tax evasion - depend positively on the prevailing tax rate, but not on the fine which is imposed in the event of detected tax evasion. Tax evasion is less frequent, though, than a model with risk neutral taxpayers predicts. We find evidence that this is due to individual moral constraints rather than to risk aversion.

Suggested Citation

  • Ralph-C Bayer & Matthias Sutter, 2004. "The Excess Burden of Tax Evasion: An Experimental Detection-Concealment Contest," School of Economics and Public Policy Working Papers 2004-07, University of Adelaide, School of Economics and Public Policy.
    • Handle: RePEc:adl:wpaper:2004-07
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    File URL: https://media.adelaide.edu.au/economics/papers/doc/wp2004-07.pdf
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    Cited by:

    1. Subhasish M. Chowdhury & Frederick Wandschneider, 2013. "Anti-trust and the ‘Beckerian Proposition’: the Effects of Investigation and Fines on Cartels," Working Paper series, University of East Anglia, Centre for Competition Policy (CCP) 2013-09, Centre for Competition Policy, University of East Anglia, Norwich, UK..
    2. Christoph Engel, 2016. "Experimental Criminal Law. A Survey of Contributions from Law, Economics and Criminology," Discussion Paper Series of the Max Planck Institute for Behavioral Economics 2016_07, Max Planck Institute for Behavioral Economics.
    3. Wilfried Anicet Kouamé, 2015. "Tax Morale and Trust in Public Institutions," Cahiers de recherche 15-14, Departement d'économique de l'École de gestion à l'Université de Sherbrooke, revised Oct 2017.
    4. Bayer, Ralph-Christopher, 2016. "Cooperation and distributive conflict," Games and Economic Behavior, Elsevier, vol. 97(C), pages 88-109.
    5. Gerxhani, Klarita & Schram, Arthur, 2006. "Tax evasion and income source: A comparative experimental study," Journal of Economic Psychology, Elsevier, vol. 27(3), pages 402-422, June.
    6. Loukas Balafoutas & Adrian Beck & Rudolf Kerschbamer & Matthias Sutter, 2014. "The Hidden Costs of Tax Evasion - Collaborative Tax Evasion in Markets for Expert Services," Working Papers 2014-01, Faculty of Economics and Statistics, Universität Innsbruck.
    7. Massimo Finocchiaro Castro & Ilde Rizzo, 2014. "Tax compliance under horizontal and vertical equity conditions: An experimental approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 21(4), pages 560-577, August.
    8. Werner Güth & Sabine Strauß & Matthias Sutter, 2005. "Tax Evasion And State Productivity—An Experimental Study," Metroeconomica, Wiley Blackwell, vol. 56(1), pages 85-100, February.
    9. Pawe³ Pankiewicz, 2011. "The Individual Taxpayer Utility Function with Tax Optimization and Fiscal Fraud Environment," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 7(3), pages 52-58, November.
    10. Coricelli, Giorgio & Joffily, Mateus & Montmarquette, Claude & Villeval, Marie Claire, 2007. "Tax Evasion: Cheating Rationally or Deciding Emotionally?," IZA Discussion Papers 3103, Institute of Labor Economics (IZA).
    11. Nussim, Jacob & Tabbach, Avraham D., 2009. "Deterrence and avoidance," International Review of Law and Economics, Elsevier, vol. 29(4), pages 314-323, December.
    12. Sheedy, Elizabeth & Zhang, Le & Tam, Kenny Chi Ho, 2019. "Incentives and culture in risk compliance," Journal of Banking & Finance, Elsevier, vol. 107(C), pages 1-1.
    13. Radu Claudia Florina & Dumiter Florin Cornel & Dudas Lavinia & Jimon Stefania Master, 2017. "Study On Budget Revenue Collection, Shadow Economy and Tax Losses Caused By It," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 27(2), pages 1-18, June.
    14. Ratbek Dzhumashev & Emin Gahramanov, 2010. "A Growth Model with Income Tax Evasion: Some Implications for Australia," The Economic Record, The Economic Society of Australia, vol. 86(275), pages 620-636, December.
    15. James Alm & Antoine Malézieux, 2021. "40 years of tax evasion games: a meta-analysis," Experimental Economics, Springer;Economic Science Association, vol. 24(3), pages 699-750, September.
    16. Engel, Christoph & Zamir, Eyal, 2024. "Is transparency a blessing or a curse? An experimental horse race between accountability and extortionary corruption," International Review of Law and Economics, Elsevier, vol. 78(C).
    17. Blaufus, Kay & Braune, Matthias & Hundsdoerfer, Jochen & Jacob, Martin, 2015. "Self-serving bias and tax morale," Economics Letters, Elsevier, vol. 131(C), pages 91-93.
    18. Balafoutas, Loukas & Beck, Adrian & Kerschbamer, Rudolf & Sutter, Matthias, 2015. "The hidden costs of tax evasion," Journal of Public Economics, Elsevier, vol. 129(C), pages 14-25.
    19. Coricelli, Giorgio & Rusconi, Elena & Villeval, Marie Claire, 2014. "Tax evasion and emotions: An empirical test of re-integrative shaming theory," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 49-61.
    20. Dzhumashev, Ratbek & Gahramanov, Emin, 2008. "Can we tax the desire for tax evasion?," Working Papers eco_2008_19, Deakin University, Department of Economics.

    More about this item

    Keywords

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    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior

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