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Tax Evasion and Trust

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Abstract

Tax evasion is typically analyzed in a principal/agent framework, the government (principal) trying to provide agents with the incentives to pay their taxes. However, evading sales, excise or trade taxes requires the cooperation of at least two taxpayers. When individuals evade taxes, they face two potential costs. One is that tax evasion may be detected and sanctioned; the other is that their partner in crime might cheat. An increase in the sanction for tax evasion leads to a direct increase in the expected cost of a transaction in the illegal sector. However, it may also reduce the incentive to cheat. It may then be that a small increase in the sanction reduces the total cost of transacting in the illegal sector. Tax evasion may increase as a result. Il est habituel d'analyser l'évasion fiscale dans le cadre de modèles principal-agent, le gouvernement jouant le rôle du principal et le payeur de taxe potentiel celui de l'agent. Pourtant, l'évasion fiscale n'est fréquemment possible que si plusieurs agents coopèrent ensemble. Une telle coopération est par exemple nécessaire pour l'évasion des taxes de vente et d'assise. Lorsque plusieurs agents décident d'un commun accord de ne pas payer une taxe, ils doivent prendre deux coûts en considération. Le premier est que malgré tous leurs efforts pour que leurs activités d'évasion demeurent secrètes, il est possible qu'elles soient détectées et qu'ils soient sanctionnés. Le second est que le ou les partenaires peuvent ne pas fournir l'effort attendu (i.e. tricher) pour que les activités demeurent secrètes, augmentant alors la probabilité de détection. Une augmentation de la sanction pour évasion fiscale a alors deux effets. Elle augmente tout d'abord, de façon directe, le coût espéré de transiger illégalement. Mais elle peut également réduire l'incitation à tricher des partenaires impliqués dans une transaction illégale. En conséquence, un accroissement de la sanction peut réduire le coût total de certaines transactions illégales et mener à une augmentation de l'évasion fiscale.

Suggested Citation

  • Robin Boadway & Nicolas Marceau & Steeve Mongrain, 2000. "Tax Evasion and Trust," Cahiers de recherche CREFE / CREFE Working Papers 104, CREFE, Université du Québec à Montréal.
  • Handle: RePEc:cre:crefwp:104
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    References listed on IDEAS

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    1. Michihiro Kandori, 1992. "Repeated Games Played by Overlapping Generations of Players," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 81-92.
    2. 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.
    3. Frank A. Cowell, 1990. "Cheating the Government: The Economics of Evasion," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262532484, January.
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    5. Parkash Chander & Louis L. Wilde, 1998. "A General Characterization of Optimal Income Tax Enforcement," Review of Economic Studies, Oxford University Press, vol. 65(1), pages 165-183.
    6. Frank Flatters & W. Macleod, 1995. "Administrative corruption and taxation," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 2(3), pages 397-417, October.
    7. Cremer, Helmuth & Gahvari, Firouz, 1996. "Tax evasion and the optimum general income tax," Journal of Public Economics, Elsevier, vol. 60(2), pages 235-249, May.
    8. Marhuenda, Francisco & Ortuno-Ortin, Ignacio, 1997. " Tax Enforcement Problems," Scandinavian Journal of Economics, Wiley Blackwell, vol. 99(1), pages 61-72, March.
    9. Michihiro Kandori, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 63-80.
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    Cited by:

    1. Ralph-C. Bayer, 2006. "Finding Out Who The Crooks Are — Tax Evasion With Sequential Auditing," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 51(02), pages 195-227.
    2. Cowell, Frank, 2003. "Sticks and carrots," LSE Research Online Documents on Economics 2046, London School of Economics and Political Science, LSE Library.

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    Keywords

    Tax Evasion; Cooperation; Sanctions;

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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