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Tax Evasion, Welfare Fraud, and the « Broken Windows » Effect : An Experiment in Belgium, France and the Netherlands

  • Mathieu Lefebvre


    (University of Liège, CREPP, 7 boulevard du rectorat (B31), Liège 4000, Belgium)

  • Pierre Pestieau


    (University of Liège, CREPP, 7 boulevard du rectorat (B31), Liège 4000, Belgium ; CORE, University of Louvain, CEPR and PSE)

  • Arno Riedl


    (School of Economics and Business, Maastricht University, P.O. Box 616, NL-6200 Maastricht, The Netherlands; CESifo Munich, Germany; IZA, Bonn, Germany)

  • Marie-Claire Villeval


    (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon St Etienne,F-69130 Ecully, France)

In a series of experiments conducted in Belgium (Wallonia and Flanders), France and the Netherlands, we compare behavior regarding tax evasion and welfare dodging, with and without information about others’ behavior. Subjects have to decide between a "registered" income, the realization of which will be known to the tax authority for sure, and an "unregistered" income that will only be known with some probability. This unregistered income comes from self-employment in the Tax treatment and from black labor supplementing some unemployment compensation in the Welfare treatment. Subjects have then to decide on wether reporting their income or not, knowing the risk od detection. The results show that (i) individuals evade more in the Welfare treatment than in the Tax treatment ; (ii) many subjects choose and option that allows for tax evasion or welfare fraud but report their income honestly anyway ; (iii) examples of low compliance tend to increase tax evasion while examples of high compliance exert no influence ; (iv) tax evasion is more frequent in France and the Netherlands ; Wallons evade taxes less than Flemish. There is no cross-country difference in welfare dodging.

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Paper provided by Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure in its series Working Papers with number 1116.

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Date of creation: 2011
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Handle: RePEc:gat:wpaper:1116
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