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

  • Gaetano Lisi

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 authority 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.

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File URL: http://www.eeri.eu/documents/wp/EERI_RP_2012_21.pdf
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Paper provided by Economics and Econometrics Research Institute (EERI), Brussels in its series EERI Research Paper Series with number EERI_RP_2012_21.

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Date of creation: 21 Nov 2012
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Handle: RePEc:eei:rpaper:eeri_rp_2012_21
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  10. Stephan Muehlbacher & Erich Kirchler, 2010. "Tax Compliance by Trust and Power of Authorities," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 607-610.
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  13. Lisi, Gaetano, 2012. "Unemployment, tax evasion and the "slippery slope" framework," MPRA Paper 37433, University Library of Munich, Germany.
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  15. Halla Martin, 2012. "Tax Morale and Compliance Behavior: First Evidence on a Causal Link," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-27, April.
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  19. Sandmo, Agnar, 2005. "The Theory of Tax Evasion: A Retrospective View," National Tax Journal, National Tax Association, vol. 58(4), pages 643-63, December.
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  23. Hammar, Henrik & Jagers, Sverker C. & Nordblom, Katarina, 2009. "Perceived tax evasion and the importance of trust," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(2), pages 238-245, March.
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