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Tax Morale and Tax Evasion: Social Preferences and Bounded Rationality

  • Zsombor Z. Meder

    ()

    (Maastricht University Department of Economics)

  • Andras Simonovits

    ()

    (Institute of Economics Research Centre for Economic and Regional Studies Hungarian Academy of Sciences and Budapest University of Technology and Economics Institute of Mathematics and Central European University, Department of Economics)

  • Janos Vincze

    ()

    (Institute of Economics Research Centre for Economic and Regional Studies Hungarian Academy of Sciences and Corvinus University of Budapest)

We study a family of models of tax evasion, where a flat-rate tax finances only the provision of public goods, neglecting audits and wage differences. We focus on the comparison of two modeling approaches. The first is based on optimizing agents, who are endowed with social preferences, their utility being the sum of private consumption and moral utility. The second approach involves agents acting according to simple heuristics. We find that while we encounter the traditionally shaped Laffer-curve in the optimizing model, the heuristics models exhibit (linearly) increasing Laffer-curves. This difference is related to a peculiar type of behavior emerging within the heuristics based approach: a number of agents lurk in a moral state of limbo, alternating between altruism and selfishness.

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Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 1203.

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Length: 19 pages
Date of creation: Jan 2012
Date of revision:
Handle: RePEc:has:discpr:1203
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  1. Zsolt Darvas, 2009. "The impact of the crisis on budget policy in Central and Eastern Europe," Working Papers 318, Bruegel.
  2. Hokamp, Sascha & Pickhardt, Michael, 2010. "Income tax evasion in a society of heterogeneous agents: Evidence from an agent-based model," CAWM Discussion Papers 35, Center of Applied Economic Research Münster (CAWM), University of Münster.
  3. Bruno S. Frey & Benno Torgler, 2006. "Tax Morale and Conditional Cooperation," CREMA Working Paper Series 2006-11, Center for Research in Economics, Management and the Arts (CREMA).
  4. Zsolt Darvas, 2011. "Exchange Rate Policy and Economic Growth after the Financial Crisis in Central and Eastern Europe," Working Papers 1103, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
  5. Zsolt Darvas, 2011. "Beyond the Crisis: Prospects for Emerging Europe," IEHAS Discussion Papers 1103, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  6. Traxler, Christian, 2006. "Social Norms and Conditional Cooperative Taxpayers," Discussion Papers in Economics 1202, University of Munich, Department of Economics.
  7. Zsolt Darvas & Jean Pisani-Ferry & Andre Sapir, 2011. "A Comprehensive Approach to the Euro-Area Debt Crisis," IEHAS Discussion Papers 1110, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  8. Zsolt Darvas, 2008. "Leveraged Carry Trade Portfolios," IEHAS Discussion Papers 0822, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  9. Zsolt Darvas, 2008. "Estimation Bias and Inference in Overlapping Autoregressions: Implications for the Target-Zone Literature," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(1), pages 1-22, 02.
  10. Garay, Barnabás M. & Simonovits, András & Tóth, János, 2012. "Local interaction in tax evasion," Economics Letters, Elsevier, vol. 115(3), pages 412-415.
  11. Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers 004, Institute for Empirical Research in Economics - University of Zurich.
  12. M. Rabin, 2001. "Incorporating Fairness into Game Theory and Economics," Levine's Working Paper Archive 511, David K. Levine.
  13. Zsolt Darvas & Jean Pisani-Ferry, 2011. "The threat of 'currency wars': A European perspective," IEHAS Discussion Papers 1102, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  14. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
  15. Zsolt Darvas, 2010. "The Case for Reforming Euro Area Entry Criteria," Working Papers 1003, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
  16. Andras Simonovits, 2010. "Tax Morality and Progressive Wage Tax," IEHAS Discussion Papers 1005, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  17. Gabor Kezdi & Gergely Csorba, 2011. "Estimating the Lock-in Effects of Switching Costs from Firm-Level Data," IEHAS Discussion Papers 1108, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  18. 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.
  19. Lago-Peñas, Ignacio & Lago-Peñas, Santiago, 2010. "The determinants of tax morale in comparative perspective: Evidence from European countries," European Journal of Political Economy, Elsevier, vol. 26(4), pages 441-453, December.
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