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Macroeconomic implications of the dynamics between power and trust: a theoretical formalisation of the ‘slippery slope’ framework

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  • Gaetano Lisi

    () (University of Cassino)

Abstract

This paper aims to provide a thorough theoretical formalisation of the ‘slippery slope’ framework in order to highlight the effects and the macroeconomic implications of the dynamics between power and trust. In particular, the proposed model is able to differentiate between coercive and legitimate power, thus elucidating the dynamics between power and trust and its influence on tax climate and tax compliance. Also, by introducing trust in tax authorities as a determinant of tax compliance, the decision to under-report income is no longer based on expected profits maximisation and thus the tax compliance problem can not be explained by a pure economic approach. The main results of the model are the following: (i) trust-building actions are better than deterring measures for overall tax compliance, since they establish a cooperative tax climate and lead to a legitimate power, while too much power corrodes trust; (ii) in a society where trust is maximised and tax auth! ority benefits from a legitimate power, both employment and economic growth are higher since tax evasion and shadow economy are lower and the level of taxation can be reduced.

Suggested Citation

  • Gaetano Lisi, 2012. "Macroeconomic implications of the dynamics between power and trust: a theoretical formalisation of the ‘slippery slope’ framework," Discussion Papers in Economic Behaviour 1012, University of Valencia, ERI-CES.
  • Handle: RePEc:dbe:wpaper:1012
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    References listed on IDEAS

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    Cited by:

    1. Gaetano Lisi, 2015. "Tax morale, tax compliance and the optimal tax policy," Economic Analysis and Policy, Elsevier, pages 27-32.

    More about this item

    Keywords

    trust (in) and power (of) tax authorities; tax compliance; tax;

    JEL classification:

    • A12 - General Economics and Teaching - - General Economics - - - Relation of Economics to Other Disciplines
    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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