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Fair tax evasion and majority voting over redistributive taxation

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  • Weinreich, Daniel

Abstract

We shed some light on fairness preferences regarding tax evasion. Individuals perceive income inequality which they are responsible for as fair (e.g. work effort) while inequality resulting from factors outside their reach is regarded as unfair (e.g. productivity or wage rate). This affects the incentives to hide income from tax authorities and supply labor. We set up a model where individuals simultaneously choose unreported income and work effort given a linear taxation scheme. We show the conditions for which individuals respond with lower or higher unreported income and work effort when fair tax evasion is introduced. Beyond, it can be shown that unreported income increases while work effort decreases when the tax rate is raised. Finally, we consider a majority voting over redistributive taxation. Thereby, it is shown that the median voter prefers lower (higher) taxation if she evades less (more) taxes than would be fair since raising the tax rate would enlarge (reduce) the deviation from fair tax evasion. This affects the moral cost as peceived by the individuals.

Suggested Citation

  • Weinreich, Daniel, 2013. "Fair tax evasion and majority voting over redistributive taxation," MPRA Paper 48919, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:48919
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    File URL: https://mpra.ub.uni-muenchen.de/48919/1/MPRA_paper_48919.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    redistributive taxation; majority voting fairness; tax evasion; labor supply;

    JEL classification:

    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General

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