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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. Traxler, Christian, 2010. "Social norms and conditional cooperative taxpayers," European Journal of Political Economy, Elsevier, vol. 26(1), pages 89-103, March.
  2. Zsolt Darvas, 2010. "The Case for Reforming Euro Area Entry Criteria," IEHAS Discussion Papers 1022, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  3. Sascha Hokamp & Michael Pickhardt, 2010. "Income Tax Evasion in a Society of Heterogeneous Agents - Evidence from an Agent-based Model," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 541-553.
  4. Jean Pisani-Ferry & Zsolt Darvas, 2010. "The threat of 'currency wars': a European perspective," Policy Contributions 461, Bruegel.
  5. Zsolt Darvas, 2008. "Leveraged Carry Trade Portfolios," IEHAS Discussion Papers 0822, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
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  7. Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 817-868, August.
  8. 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.
  9. 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.
  10. 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.
  11. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
  12. 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).
  13. Zsolt Darvas, 2009. "The Impact of the Crisis on Budget Policy in Central and Eastern Europe," Working Papers 0904, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
  14. Zsolt Darvas, 2011. "Beyond the Crisis: Prospects for Emerging Europe," Comparative Economic Studies, Palgrave Macmillan, vol. 53(2), pages 261-290, June.
  15. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
  16. Garay, Barnabás M. & Simonovits, András & Tóth, János, 2012. "Local interaction in tax evasion," Economics Letters, Elsevier, vol. 115(3), pages 412-415.
  17. 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.
  18. 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.
  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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