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Tax Evasion and Social Interactions

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  • Bernard Fortin
  • Guy Lacroix
  • Marie Claire Villeval

Abstract

The paper extends the standard tax evasion model by allowing for social interactions. In Manski’s (1993) nomenclature, our model takes into account social conformity effects (i.e., endogenous interactions), fairness effects (i.e., exogenous interactions) and sorting effects (i.e., correlated effects). Our model is tested using experimental data. Participants must decide how much income to report given their tax rate and audit probability, and given those faced by the other members of their group as well as their mean reported income. The estimation is based on a two-limit simultaneous tobit with fixed group effects. A unique social equilibrium exists when the model satisfies coherency conditions. In line with Brock and Durlauf (2001b), the intrinsic nonlinearity between individual and group responses is sufficient to identify the model without imposing any exclusion restrictions. Our results are consistent with fairness effects but reject social conformity and correlated effects.
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Suggested Citation

  • Bernard Fortin & Guy Lacroix & Marie Claire Villeval, 2004. "Tax Evasion and Social Interactions," CIRANO Working Papers 2004s-61, CIRANO.
    • Handle: RePEc:cir:cirwor:2004s-61
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    More about this item

    Keywords

    social; interactions; tax evasion; simultaneous tobit; laboratory experiments.; interactions sociales; fraude fiscale; tobit simultané; économie expérimentale;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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