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The excess burden of tax evasion - An experimental detection- concealment contest

  • Ralph C Bayer

    (University of Adelaide)

  • Matthias Sutter

    (Max Planck Institute for Research into Economic Systems & University of Innsbruck)

We present an experimental study on the wasted resources associated with tax evasion. This waste arises from taxpayers and tax authorities investing costly effort in the concealment and detection of tax evasion. We show that these socially inefficient efforts - as well as the frequency of tax evasion - depend positively on the prevailing tax rate, but not on the fine which is imposed in the event of detected tax evasion. Tax evasion is less frequent, though, than a model with risk neutral taxpayers predicts. We find evidence that this is due to individual moral constraints rather than to risk aversion.

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Paper provided by EconWPA in its series Experimental with number 0412003.

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Date of creation: 14 Dec 2004
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Handle: RePEc:wpa:wuwpex:0412003
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  1. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
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  3. Ralph-C Bayer, 2004. "A Contest with the Taxman - The Impact of Tax Rates on Tax Evasion and Wastefully Invested Resources," School of Economics Working Papers 2004-11, University of Adelaide, School of Economics.
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