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Tax Morale and Tax Evasion: Social Preferences and Bounded Rationality

  • Zsombor Z. Méder

    ()

    (Maastricht University, Department of Economics, The Netherlands)

  • András Simonovits
  • János Vincze

We study a family of models of tax evasion, where a flat-rate tax finances only the provision of public goods, neglecting audits and wage differences. We focus on the comparison of two modeling approaches. The first is based on optimizing agents, who are endowed with social preferences, their utility being the sum of private consumption and moral utility. The second approach involves agents acting according to simple heuristics. We find that while we encounter the traditionally shaped Laffer-curve in the optimizing model, the heuristics models exhibit (linearly) increasing Laffer-curves. This difference is related to a peculiar type of behavior emerging within the heuristics based approach: a number of agents lurk in a moral state of limbo, alternating between altruism and selfishness.

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Paper provided by Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest in its series Working Papers with number 1202.

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Length: 19 pages
Date of creation: 08 Jun 2012
Date of revision:
Handle: RePEc:mkg:wpaper:1202
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  1. Sascha Hokamp & Michael Pickhardt, 2010. "Income Tax Evasion in a Society of Heterogeneous Agents - Evidence from an Agent-based Model," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 541-553.
  2. Zsolt Darvas, 2008. "Estimation Bias and Inference in Overlapping Autoregressions: Implications for the Target-Zone Literature," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 70(1), pages 1-22, 02.
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  5. Zsolt Darvas, 2009. "The Impact of the Crisis on Budget Policy in Central and Eastern Europe," Working Papers 0904, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
  6. Frey, Bruno S. & Torgler, Benno, 2007. "Tax morale and conditional cooperation," Journal of Comparative Economics, Elsevier, vol. 35(1), pages 136-159, March.
  7. Darvas, Zsolt, 2009. "Leveraged carry trade portfolios," Journal of Banking & Finance, Elsevier, vol. 33(5), pages 944-957, May.
  8. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
  9. Jean Pisani-Ferry & Zsolt Darvas, 2010. "The threat of 'currency wars': a European perspective," Policy Contributions 461, Bruegel.
  10. Zsolt Darvas & Jean Pisani-Ferry & André Sapir, 2011. "A Comprehensive Approach to the Euro-Area Debt Crisis," Working Papers 1101, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
  11. Garay, Barnabás M. & Simonovits, András & Tóth, János, 2012. "Local interaction in tax evasion," Economics Letters, Elsevier, vol. 115(3), pages 412-415.
  12. Traxler, Christian, 2006. "Social Norms and Conditional Cooperative Taxpayers," Discussion Papers in Economics 1202, University of Munich, Department of Economics.
  13. Andras Simonovits, 2010. "Tax Morality and Progressive Wage Tax," IEHAS Discussion Papers 1005, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  14. Zsolt Darvas, 2010. "The Case for Reforming Euro Area Entry Criteria," Working Papers 1003, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
  15. 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.
  16. Zsolt Darvas, 2011. "Exchange Rate Policy and Economic Growth after the Financial Crisis in Central and Eastern Europe," Working Papers 1103, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
  17. Zsolt Darvas, 2011. "Beyond the Crisis: Prospects for Emerging Europe," IEHAS Discussion Papers 1103, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  18. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
  19. Lago-Peñas, Ignacio & Lago-Peñas, Santiago, 2010. "The determinants of tax morale in comparative perspective: Evidence from European countries," European Journal of Political Economy, Elsevier, vol. 26(4), pages 441-453, December.
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