Resource title

Tax avoidance, endogenous social norms, and the comparison income effect

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Resource description

We present a model of income tax avoidance with heterogeneous agents, assuming the presence of a comparison income effect and of a psychic cost (disutility) of tax dodging. We analyse the policy preferences of the agents, and identify a median-voter political equilibrium. Paralleling previous results in the optimal taxation literature, we show that the comparison income effect calls for a high degree of progressivity of the income tax; additionally, we find that this tendence is strengthened by the psychic cost of avoidance. We then model the endogenous formation of the stigma attached to the act of avoidance as a conformism game. We argue that such stigma is motivated by the desire to make redistribution more effective, and that it is enhanced by the income comparison effect.

Resource author

Alessandro Balestrino

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Resource publish date

Resource language

eng

Resource content type

text/html

Resource resource URL

http://hdl.handle.net/10419/25803

Resource license

Adapt according to the presented license agreement and reference the original author.