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Tolerance to Tax Evasion

Author

Listed:
  • Alvaro Forteza

    (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)

  • Cecilia Noboa

    (Departamento de Economía, Facultad de Ciencias Sociales, Universidad de la República)

Abstract

We present a formal model in which individuals want the government to tolerate tax evasion because, in the context of limited state capacity, evasion provides insurance. Preferred tolerance to tax evasion increases with income, because government programs are redistributive. We take the model to the data using the World Values Survey. We show that both in the model and in the WVS data justification of tax evasion is increasing in individuals’ income, presents an inverted-U shape in perceived risk and is decreasing in institutional quality. Our analysis suggests that strong tax enforcement might not be popular among many citizens, particularly so in weak institutional environments.

Suggested Citation

  • Alvaro Forteza & Cecilia Noboa, 2015. "Tolerance to Tax Evasion," Documentos de Trabajo (working papers) 1015, Department of Economics - dECON.
    • Handle: RePEc:ude:wpaper:1015
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    File URL: https://hdl.handle.net/20.500.12008/10722
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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