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Loss evasion and tax aversion

  • Engström, Per


    (Uppsala Center for Fiscal Studies)

  • Nordblom, Katarina


    (Uppsala Center for Fiscal Studies)

  • Ohlsson, Henry


    (Uppsala Center for Fiscal Studies)

  • Persson, Annika

    (The Swedish Tax Agency)

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.

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Paper provided by Uppsala University, Department of Economics in its series Working Paper Series, Center for Fiscal Studies with number 2011:11.

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Length: 43 pages
Date of creation: 29 Nov 2011
Date of revision:
Publication status: Published as Engström, Per, Katarina Nordblom, Henry Ohlsson and Annika Persson, 'Loss evasion and tax aversion' in American Economic Journal: Economic Policy, 2015, pages 132-164.
Handle: RePEc:hhs:uufswp:2011_011
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Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden

Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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