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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," CEPR Discussion Papers 4567, C.E.P.R. Discussion Papers.
  2. Pommerehne, Werner W & Hart, Albert & Frey, Bruno S, 1994. "Tax Morale, Tax Evasion and the Choice of Policy Instruments in Different Political Systems," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 52-69.
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  4. Andreoni, J. & Erard, B. & Feinstein, J., 1996. "Tax Compliance," Working papers 9610r, Wisconsin Madison - Social Systems.
  5. Epstein, Gil S, 2002. "Informational Cascades and Decision to Migrate," CEPR Discussion Papers 3287, C.E.P.R. Discussion Papers.
  6. Ira N. Gang & Arindam Das-Gupta, 1998. "Value Added Tax Evasion, Auditing and Transactions Matching," Departmental Working Papers 199607, Rutgers University, Department of Economics.
  7. Fajnzylber, Pablo & Lederman, Daniel & Loayza, Norman, 2002. "What causes violent crime?," European Economic Review, Elsevier, vol. 46(7), pages 1323-1357, July.
  8. 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.
  9. Ira N. Gang & Amal Sanyal & Omkar Goswami, 1998. "Corruption, Tax Evasion and the Laffer Curve," Departmental Working Papers 199604, Rutgers University, Department of Economics.
  10. 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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  12. George A. Akerlof, 1978. "A theory of social custom, of which unemployment may be one consequence," Special Studies Papers 118, Board of Governors of the Federal Reserve System (U.S.).
  13. Scharfstein, David. & Stein, Jeremy C., 1988. "Herd behavior and investment," Working papers WP 2062-88., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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  15. Arindam Das-Gupta & Radhika Lahiri & Dilip Mookherjee, 1995. "Income Tax Compliance in India: An Empirical Analysis," Boston University - Institute for Economic Development 57, Boston University, Institute for Economic Development.
  16. 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.
  17. 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.
  18. Fishlow, Albert & Friedman, Jorge, 1994. "Tax evasion, inflation and stabilization," Journal of Development Economics, Elsevier, vol. 43(1), pages 105-123, February.
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  22. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
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