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Tax Evasion and Social Interactions

  • Bernard Fortin

    (Département d'Economique, Université Laval - Universite Laval (Quebec))

  • Guy Lacroix

    (Département d'Economique, Université Laval - Universite Laval (Quebec))

  • Marie Claire Villeval

    ()

    (GATE - Groupe d'analyse et de théorie économique - CNRS - UL2 - Université Lumière - Lyon 2 - Ecole Normale Supérieure Lettres et Sciences Humaines)

The paper extends the standard tax evasion model by allowing for social interactions. In Manski's (1993) nomenclature, our model takes into account endogenous interactions, i.e., social conformity effects, exogenous interactions, i.e., fairness effects, and correlated effects. Our model is tested using experimental data. Participants must decide how much income to report given individual and group tax rates and audit probabilities, and given a feedback on theother members' reporting behavior. Myopic and self-consistent expectations are considered in the analysis. In the latter case, 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 helps identify the model. Our results provide evidence of fairness effects but reject social conformity.

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Date of creation: 2007
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Publication status: Published in Journal of Public Economics, Elsevier, 2007, 91 (11-12), pp. 2089-2112
Handle: RePEc:hal:journl:halshs-00238448
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