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Loss evasion and tax aversion

Author

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  • Engström, Per

    () (Dept of Economics and Uppsala Center for Fiscal Studies (UCFS), Uppsala University)

  • Nordblom, Katarina

    () (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Ohlsson, Henry

    () (Dept of Economics and Uppsala Center for Fiscal Studies (UCFS), Uppsala University)

  • Persson, Annika

    (The Swedish Tax Agency)

Abstract

The objective of this paper is to study if taxpayers behave in a loss averse manner when filing their tax returns. This is important for tax design but also for understanding human behavior in general. The predictions of prospect theory can be contrasted to those of expected utility theory. We use data for 3.6 million Swedish taxpayers for the income year 2006. Our research method is quasi-experimental using a regression kink and discontinuity approach. We also use an alternative instrumental-variables approach. There is strong evidence of loss aversion. We estimate the coefficient of loss aversion using actual behavior and the instrument-variables approach. Our estimate is very close to the estimates reported in the experimental literature.

Suggested Citation

  • Engström, Per & Nordblom, Katarina & Ohlsson, Henry & Persson, Annika, 2011. "Loss evasion and tax aversion," Working Papers in Economics 518, University of Gothenburg, Department of Economics.
  • Handle: RePEc:hhs:gunwpe:0518
    Note: Katarina Nordblom is also working at UCFS.
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    File URL: http://hdl.handle.net/2077/28028
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bana, Sarah & Bedard, Kelly & Rossin-Slater, Maya, 2018. "The Impacts of Paid Family Leave Benefits: Regression Kink Evidence from California Administrative Data," IZA Discussion Papers 11381, Institute for the Study of Labor (IZA).
    2. repec:spr:empeco:v:53:y:2017:i:3:d:10.1007_s00181-016-1155-8 is not listed on IDEAS
    3. Erzo F. P. Luttmer & Monica Singhal, 2014. "Tax Morale," Journal of Economic Perspectives, American Economic Association, vol. 28(4), pages 149-168, Fall.
    4. Kip Viscusi, W. & Gayer, Ted, 2016. "Rational Benefit Assessment for an Irrational World: Toward a Behavioral Transfer Test," Journal of Benefit-Cost Analysis, Cambridge University Press, vol. 7(01), pages 69-91, March.
    5. Johannes Becker & Jonas Fooken & Melanie Steinhoff, 2018. "Behavioral Effects of Withholding Taxes on Labor Supply," Discussion Papers Series 589, School of Economics, University of Queensland, Australia.
    6. Michihito Ando, 2017. "How much should we trust regression-kink-design estimates?," Empirical Economics, Springer, vol. 53(3), pages 1287-1322, November.
    7. Brigitte C. Madrian, 2014. "Applying Insights from Behavioral Economics to Policy Design," Annual Review of Economics, Annual Reviews, vol. 6(1), pages 663-688, August.
    8. Chowdhury Mohammad Sakib Anwar & Alexander Matros & Sonali Sen Gupta, 2018. "Tax Evasion, Embezzlement and Public Good Provision," Working Papers 232397285, Lancaster University Management School, Economics Department.
    9. Markus Jäntti & Ravi Kanbur & Milla Nyyssölä & Jukka Pirttilä, 2014. "Poverty and Welfare Measurement on the Basis of Prospect Theory," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 60(1), pages 182-205, March.
    10. Bastani, Spencer & Selin, Håkan, 2014. "Bunching and non-bunching at kink points of the Swedish tax schedule," Journal of Public Economics, Elsevier, vol. 109(C), pages 36-49.
    11. repec:eee:juecon:v:99:y:2017:i:c:p:31-47 is not listed on IDEAS
    12. Michael Chirico & Robert Inman & Charles Loeffler & John MacDonald & Holger Sieg, 2016. "Deterring Delinquency: A Field Experiment in Improving Tax Compliance Behavior," Natural Field Experiments 00543, The Field Experiments Website.
    13. Alex Rees-Jones & Dmitry Taubinsky, 2017. "Taxing Humans: Pitfalls of the Mechanism Design Approach and Potential Resolutions," NBER Chapters,in: Tax Policy and the Economy, Volume 32 National Bureau of Economic Research, Inc.
    14. repec:eee:jeborg:v:137:y:2017:i:c:p:428-444 is not listed on IDEAS
    15. Engström, Per & Nordblom, Katarina & Stefansson, Arnaldur, 2018. "Multiple Misbehaving:Loss Averse and Inattentive to Monetary Incentives," Working Papers in Economics 729, University of Gothenburg, Department of Economics.
    16. Soetevent, Adriaan R. & Bruzikas, Tadas, 2016. "Risk and Loss Aversion, Price Uncertainty and the Implications for Consumer Search," Research Report 16015-EEF, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    17. Gilles Grolleau & Martin G. Kocher & Angela Sutan, 2016. "Cheating and Loss Aversion: Do People Cheat More to Avoid a Loss?," Management Science, INFORMS, vol. 62(12), pages 3428-3438, December.
    18. Sarah Bana & Kelly Bedard & Maya Rossin-Slater, 2018. "The Impacts of Paid Family Leave Benefits: Regression Kink Evidence from California Administrative Data," NBER Working Papers 24438, National Bureau of Economic Research, Inc.
    19. William Morrison, Robert Oxoby, 2016. "Risk Taking, Intertemporal Choice, and Loss Aversion," LCERPA Working Papers 0096, Laurier Centre for Economic Research and Policy Analysis, revised 01 Jul 2016.
    20. Ganong, Peter & Jäger, Simon, 2014. "A Permutation Test and Estimation Alternatives for the Regression Kink Design," IZA Discussion Papers 8282, Institute for the Study of Labor (IZA).
    21. repec:hrv:faseco:34222894 is not listed on IDEAS
    22. repec:eme:afrpps:afr-05-2016-0045 is not listed on IDEAS

    More about this item

    Keywords

    loss aversion; prospect theory; tax compliance; quasi-experiment; regression kink; regression discontinuity;

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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