IDEAS home Printed from
MyIDEAS: Login to save this paper or follow this series

Tax Evasion and Social Interactions

  • Fortin, Bernard


    (Université Laval)

  • Lacroix, Guy


    (Université Laval)

  • Villeval, Marie Claire


    (CNRS, GATE)

The paper extends the standard tax evasion model by allowing for social interactions. In Manski’s (1993) nomenclature, our model takes into account social conformity effects (i.e., endogenous interactions), fairness effects (i.e., exogenous interactions) and sorting effects (i.e., correlated effects). Our model is tested using experimental data. Participants must decide how much income to report given their tax rate and audit probability, and given those faced by the other members of their group as well as their mean reported income. The estimation is based on a two-limit simultaneous tobit with fixed group effects. A unique social equilibrium exists when the model satisfies coherency conditions. In line with Brock and Durlauf (2001b), the intrinsic nonlinearity between individual and group responses is sufficient to identify the model without imposing any exclusion restrictions. Our results are consistent with fairness effects but reject social conformity and correlated effects.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL:
Download Restriction: no

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1359.

in new window

Length: 31 pages
Date of creation: Oct 2004
Date of revision:
Publication status: published in: Journal of Public Economics, 2007, 91 (11-12), 2089-2112.
Handle: RePEc:iza:izadps:dp1359
Contact details of provider: Postal: IZA, P.O. Box 7240, D-53072 Bonn, Germany
Phone: +49 228 3894 223
Fax: +49 228 3894 180
Web page:

Order Information: Postal: IZA, Margard Ody, P.O. Box 7240, D-53072 Bonn, Germany

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Alm, James & McClelland, Gary H & Schulze, William D, 1999. "Changing the Social Norm of Tax Compliance by Voting," Kyklos, Wiley Blackwell, vol. 52(2), pages 141-71.
  2. William Brock & Steven N. Durlauf, 2000. "Interactions-Based Models," NBER Technical Working Papers 0258, National Bureau of Economic Research, Inc.
  3. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  4. Daniel Aaronson, 1996. "Using sibling data to estimate the impact of neighborhoods on children' s educational outcomes," Working Paper Series, Macroeconomic Issues WP-96-19, Federal Reserve Bank of Chicago.
  5. Falk, Armin & Fischbacher, Urs, 2002. ""Crime" in the lab-detecting social interaction," European Economic Review, Elsevier, vol. 46(4-5), pages 859-869, May.
  6. Myles, Gareth D. & Naylor, Robin A., 1996. "A model of tax evasion with group conformity and social customs," European Journal of Political Economy, Elsevier, vol. 12(1), pages 49-66, April.
  7. Alm, James & McClelland, Gary H. & Schulze, William D., 1992. "Why do people pay taxes?," Journal of Public Economics, Elsevier, vol. 48(1), pages 21-38, June.
  8. Ethan Cohen-Cole, 2005. "Resolving the Identification Problem in Linear Social Interactions Models: Modeling with Between-Group Spillovers," Others 0501001, EconWPA.
  9. E. Glaeser & B. Sacerdote & Jose A. Scheinkman, 2003. "The Social Multiplier," Levine's Working Paper Archive 506439000000000130, David K. Levine.
  10. Amemiya, Takeshi, 1974. "Multivariate Regression and Simultaneous Equation Models when the Dependent Variables Are Truncated Normal," Econometrica, Econometric Society, vol. 42(6), pages 999-1012, November.
  11. Krauth, Brian V., 2006. "Simulation-based estimation of peer effects," Journal of Econometrics, Elsevier, vol. 133(1), pages 243-271, July.
  12. Alm, James & Jackson, Betty & McKee, Michael J., 1992. "Estimating the Determinants of Taxpayer Compliance with Experimental Data," National Tax Journal, National Tax Association, vol. 45(1), pages 107-14, March.
  13. Elffers, Henk & Weigel, Russell H. & Hessing, Dick J., 1987. "The consequences of different strategies for measuring tax evasion behavior," Journal of Economic Psychology, Elsevier, vol. 8(3), pages 311-337, September.
  14. Slemrod, Joel & Blumenthal, Marsha & Christian, Charles, 2001. "Taxpayer response to an increased probability of audit: evidence from a controlled experiment in Minnesota," Journal of Public Economics, Elsevier, vol. 79(3), pages 455-483, March.
  15. C. Gourieroux & Jean-Jacques Laffont & A. Monfort, 1979. "Coherency Conditions In Simultaneous Linear Equation Models With Endogenous Switching Regimes," NBER Working Papers 0343, National Bureau of Economic Research, Inc.
  16. Charles F. Manski, 2000. "Economic Analysis of Social Interactions," NBER Working Papers 7580, National Bureau of Economic Research, Inc.
  17. Baldry, J. C., 1986. "Tax evasion is not a gamble : A report on two experiments," Economics Letters, Elsevier, vol. 22(4), pages 333-335.
  18. Aronsson, Thomas & Blomquist, Soren & Sacklen, Hans, 1999. "Identifying Interdependent Behaviour in an Empirical Model of Labour Supply," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 14(6), pages 607-26, Nov.-Dec..
  19. Erard, Brian & Feinstein, Jonathan S, 1994. "The Role of Moral Sentiments and Audit Perceptions in Tax Compliance," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 70-89.
  20. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
  21. Klepper, Steven & Nagin, Daniel, 1989. "The Anatomy of Tax Evasion," Journal of Law, Economics and Organization, Oxford University Press, vol. 5(1), pages 1-24, Spring.
  22. Kooreman, P., 2007. "Time, money, peers, and parents : Some data and theories on teenage behavior," Other publications TiSEM 05026f0a-e418-4eb8-a483-7, Tilburg University, School of Economics and Management.
  23. repec:oup:qjecon:v:94:y:1980:i:4:p:749-75 is not listed on IDEAS
  24. Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-73, August.
  25. Andreoni, J. & Erard, B. & Feinstein, J., 1996. "Tax Compliance," Working papers 9610r, Wisconsin Madison - Social Systems.
  26. Bosco, Luigi & Mittone, Luigi, 1997. "Tax Evasion and Moral Constraints: Some Experimental Evidence," Kyklos, Wiley Blackwell, vol. 50(3), pages 297-324.
  27. Edward L. Glaeser & Jose Scheinkman, 2000. "Non-Market Interactions," NBER Working Papers 8053, National Bureau of Economic Research, Inc.
  28. Blume,L.E. & Durlauf,S.N., 2005. "Identifying social interactions : a review," Working papers 12, Wisconsin Madison - Social Systems.
  29. Torgler, Benno, 2002. " Speaking to Theorists and Searching for Facts: Tax Morale and Tax Compliance in Experiments," Journal of Economic Surveys, Wiley Blackwell, vol. 16(5), pages 657-83, December.
  30. Peter Kooreman, 2007. "Time, money, peers, and parents; some data and theories on teenage behavior," Journal of Population Economics, Springer, vol. 20(1), pages 9-33, February.
  31. Friedland, Nehemiah & Maital, Shlomo & Rutenberg, Aryeh, 1978. "A simulation study of income tax evasion," Journal of Public Economics, Elsevier, vol. 10(1), pages 107-116, August.
  32. Sharmila King & Steven Sheffrin, 2002. "Tax Evasion and Equity Theory: An Investigative Approach," International Tax and Public Finance, Springer, vol. 9(4), pages 505-521, August.
  33. Evans, William N & Oates, Wallace E & Schwab, Robert M, 1992. "Measuring Peer Group Effects: A Study of Teenage Behavior," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 966-91, October.
  34. Spicer, Michael W. & Hero, Rodney E., 1985. "Tax evasion and heuristics : A research note," Journal of Public Economics, Elsevier, vol. 26(2), pages 263-267, March.
  35. repec:oup:restud:v:60:y:1993:i:3:p:531-42 is not listed on IDEAS
  36. Alm, James & Sanchez, Isabel & de Juan, Ana, 1995. "Economic and Noneconomic Factors in Tax Compliance," Kyklos, Wiley Blackwell, vol. 48(1), pages 3-18.
  37. Robben, Henry S. J. & Webley, Paul & Weigel, Russell H. & Warneryd, Karl-Erik & Kinsey, Karyl A. & Hessing, Dick J. & Martin, Francisco Alvira & Elffers, Henk & Wahlund, Richard & Van Langenhove, Luk, 1990. "Decision frame and opportunity as determinants of tax cheating : An international experimental study," Journal of Economic Psychology, Elsevier, vol. 11(3), pages 341-364, September.
  38. Gordon, James P. P., 1989. "Individual morality and reputation costs as deterrents to tax evasion," European Economic Review, Elsevier, vol. 33(4), pages 797-805, April.
  39. Alm, James & Bahl, Roy & Murray, Matthew N., 1993. "Audit selection and income tax underreporting in the tax compliance game," Journal of Development Economics, Elsevier, vol. 42(1), pages 1-33, October.
  40. Wenzel, Michael, 2004. "An analysis of norm processes in tax compliance," Journal of Economic Psychology, Elsevier, vol. 25(2), pages 213-228, April.
  41. Bernard M.S. van Praag & Paul Frijters, 1999. "The measurement of welfare and well-being; the Leyden approach," School of Economics and Finance Discussion Papers and Working Papers Series 071a, School of Economics and Finance, Queensland University of Technology.
  42. Sheffrin, S.M. & Triest, R.K., 1991. "Can Brute Deterrence Backfire? Perceptions and Attitudes in Taxpayer Compliance," Papers 373, California Davis - Institute of Governmental Affairs.
  43. 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.
  44. repec:oup:restud:v:68:y:2001:i:2:p:235-60 is not listed on IDEAS
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp1359. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark Fallak)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.