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Tax Evasion: A Real Option Approach




A theoretical model of excise tax evasion is developed in this paper. The dynamics of a change in tax policy is derived, under the assumption that consumers benefit from a lower price when entering a "black market". However, entry also impose a sunk cost, which gives rise to asymmetric effects and persistence effects on both aggregate demand and on tax revenues. An increase in the tax rate instantaneously brings more entrants into the black market, whereas a tax cut has no short-run effects on the fraction of the population that has access to the black market.

Suggested Citation

  • Forsfält, Tomas, 1999. "Tax Evasion: A Real Option Approach," Research Papers in Economics 1999:19, Stockholm University, Department of Economics.
  • Handle: RePEc:hhs:sunrpe:1999_0019

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    References listed on IDEAS

    1. Chaim Fershtman & Uri Gneezy, 2001. "Discrimination in a Segmented Society: An Experimental Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 351-377.
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    4. James Andreoni & Lise Vesterlund, 2001. "Which is the Fair Sex? Gender Differences in Altruism," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 293-312.
    5. Martin Kocher & Matthias Sutter, 2007. "Individual versus group behavior and the role of the decision making procedure in gift-exchange experiments," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 34(1), pages 63-88, March.
    6. James Cox & Stephen Hayne, 2006. "Barking up the right tree: Are small groups rational agents?," Experimental Economics, Springer;Economic Science Association, vol. 9(3), pages 209-222, September.
    7. Uri Gneezy & Muriel Niederle & Aldo Rustichini, 2003. "Performance in Competitive Environments: Gender Differences," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 1049-1074.
    8. Bolton, Gary E. & Katok, Elena, 1995. "An experimental test for gender differences in beneficent behavior," Economics Letters, Elsevier, vol. 48(3-4), pages 287-292, June.
    9. Dufwenberg, Martin & Muren, Astri, 2002. "Discrimination by Gender and Social Distance," Research Papers in Economics 2002:2, Stockholm University, Department of Economics.
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    More about this item


    excise tax; real option; social norm; tax evasion;

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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