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Why Pay Taxes When No One Else Does?

  • Epstein, Gil S.

    ()

    (Bar-Ilan University)

  • Gang, Ira N.

    ()

    (Rutgers University)

In this paper we try to understand the phenomena whereby a large proportion of the population evades tax payments. We present a model which incorporates elements from the theory of information cascades with the standard model of tax evasion and analyze the connection between the decision of a potential tax evader, the number of tax evaders and the number caught in previous periods. General conditions exist under which any expected utility maximizing tax evaders will decide to emulate other tax evaders.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4153.

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Length: 22 pages
Date of creation: Apr 2009
Date of revision:
Publication status: published in: Review of Development Economics, 2010, 14 (2), 374-385
Handle: RePEc:iza:izadps:dp4153
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  1. Hunt, Jennifer, 2004. "Trust and Bribery: The Role of the Quid Pro Quo and the Link with Crime," IZA Discussion Papers 1179, Institute for the Study of Labor (IZA).
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  5. Peter Stella, 1993. "Tax Farming: A Radical Solution for Developing Country Tax Problems?," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 217-225, March.
  6. de Juan, Ana & Lasheras, Miguel A & Mayo, Rafaela, 1994. "Voluntary Tax Compliant Behavior of Spanish Income Tax Payers," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 90-105.
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  12. Scharfstein, David. & Stein, Jeremy C., 1988. "Herd behavior and investment," Working papers WP 2062-88., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  13. Epstein, Gil S., 2002. "Informational Cascades and Decision to Migrate," IZA Discussion Papers 445, Institute for the Study of Labor (IZA).
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  15. Frank Flatters & W. Macleod, 1995. "Administrative corruption and taxation," International Tax and Public Finance, Springer, vol. 2(3), pages 397-417, October.
  16. Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
  17. Gautam Bose & Shubhashis Gangopadhyay, 2009. "Intermediation in corruption markets," Indian Growth and Development Review, Emerald Group Publishing, vol. 2(1), pages 39-55, April.
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  20. Fajnzylber, Pablo & Lederman, Daniel & Loayza, Norman, 2002. "What causes violent crime?," European Economic Review, Elsevier, vol. 46(7), pages 1323-1357, July.
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  22. Gul, Faruk & Lundholm, Russell, 1995. "Endogenous Timing and the Clustering of Agents' Decisions," Journal of Political Economy, University of Chicago Press, vol. 103(5), pages 1039-66, October.
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