Tax evasion in a behaviorally heterogeneous society: An evolutionary analysis

We focus on the tax evasion dynamics emerging from repeated interaction of three types of taxpayers: cheaters, honest citizens and punishers. By assuming that cultural evolution is driven by material payoffs only, we show that a long overlooked behavioral attitude towards taxation such as tax morale is important to dynamically induce higher levels of tax compliance within a large-scale population. The results of our evolutionary analysis reveal that the presence of taxpayers who both act honestly in the first place and are willing to costly sanction cheaters plays an important role for the long-run success of the social battle against tax evasion.     

Corporate tax evasion: The case for specialists

We analyze the role of accounting specialists who help corporations evade/avoid taxes in a game of incomplete information played by a tax authority, corporate taxpayers, and an accounting specialist. In addition to a full equilibrium characterization, we establish that (i) marginal changes in enforcement are not effective when evasion/avoidance is pervasive; (ii) fines on firms as opposed to specialists are more effective in such situations; (iii) reducing auditing costs and increasing “creative accounting” costs are effective in curbing evasion when tax compliance is relatively high.     

A tax discrepancy coefficient resulting from tax evasion or tax expenditures

Tax evasion and tax expenditures introduce discrepancies between taxpayers. In this paper, a tax discrepancy coefficient has been worked out in order to establish, given a constant tax yield, what bigger or smaller amounts taxpayers would have to pay if tax evasion or tax expenditures were completely eliminated. After the definition of the coefficients these are calculated for individual income tax returns in Belgium. Similar coefficients can be established for other types of taxation, such as inheritance tax, corporate income tax or even sales tax (e.g. V.A.T.).     

A Tax Evasion Model with Allowance for Retroactive Penalties*

Discrete models of tax evasion are considered when evasion has occurred over a period of several years. Allowance is made for growth in income, investment of illicit gains from successful evasion, and the imposition of retroactive penalties. Retroactive penalties increase deterrence of evasion if introduced at a point where evasion has been continuing for some years, since the utility gain from continuing successful evasion is unaffected, whereas the utility loss will be increased regardless of attitude to risk. Prohibitive penalty rates are determined, and a range of penalty rates are given in which some dishonest taxpayers may become honest. The formulation of the basic model and consequent conclusions are relevant to the current Australian taxation scene.     

Tax evasion,social norms,and economic growth

We propose a theoretical model to account for the negative relationship between tax evasion and economic development. More precisely, we integrate tax morale into a dynamic OLG model of tax evasion. Tax morale is modeled as a social norm for tax compliance. We show that accounting for such nonpecuniary costs of evasion may explain (a) why the share of evaded taxes over GDP decreases when countries grow and (b) that tax morale is positively correlated with the level of GDP per capita. Finally, a higher tax rate increases aggregate evasion and the number of evaders when taxpayers decisions are interdependent.     

Separating small and big fish: The case of income tax evasion

This paper proposes to offer the taxpayer a choice of tax-enforcement schemes for self-selection. More specifically, the taxpayer should have the possibility of opting for the prevailing regime with a certain penalty on the evaded tax or for an alternative regime with a higher penalty on the evaded tax but a reduced tax rate. It is shown that this leads to a separation of taxpayers characterized by a relatively high degree of evasion (H-evaders) from taxpayers who evade only a relatively small amount of tax (L-evaders). Furthermore, the procedure is not self-defeating, it is effectively possible to direct the efforts of auditing towards the H-evaders. At the end of the game the L-evaders experience a welfare gain, the H-evaders are induced to reduce their evasion activities and the government can expect higher yields.We wish to thank Johann K. Brunner and two anonymous referees for many helpful comments.     

The Enforcement of Income Tax Laws: Efficiency Implications*

Complete enforcement of income tax laws, designed to reduce income tax evasion to zero, is shown to be inefficient. Starting from a 'full compliance' policy, it is shown that a marginal reduction in enforcement will always allow for tax reductions, hence increases in the ex-ante utility levels of taxpayers. Only if the tax structure is rigid can full compliance be optimal.     

税收流失中的双委托-多代理问题

本文首次给出了税收流失问题中的多委托—多代理模型分析框架,并将政府、国税局和地税局、纳税人置于统一的博弈框架下,作为博弈的三方进行讨论。只要政府给国税局和地税局以适当的激励,政府仍然能设计出让纳税人"诚实"申报的显示机制;国税局和地税局作为税收征管者和纳税人之间的博弈可以看成是一个双委托—代理问题,此时税收征收上的"正外部性"和税收监菅上的"搭便车"效应将是双委托—代理问题中的新现象。     

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

Tax evasion may cause social welfare losses due to the incentives of taxpayers to invest in the concealment and of tax authorities to invest in the detection of tax evasion. Reducing the investment of both parties at the same time would then lead to a Pareto improvement. Given that concealment and detection costs are hardly measurable in reality, we show in a controlled laboratory experiment that the welfare losses from a concealment-detection contest depend positively on the prevailing tax rate, but not on the penalty which is imposed in case of detected tax evasion. Hence, policy makers who are concerned about socially inefficient concealment and enforcement costs should focus on tax rates rather than penalty rates.     

Joint tax evasion

Tax evasion analysis typically assumes that evasion involves individual taxpayers responding to some given policies. However, evading taxes could require the collaboration of at least two taxpayers. Detection depends on the costly avoidance activities of both transacting partners. An increase in sanctions leads to a direct increase in the expected cost of a transaction in the illegal sector, but it may also increase the incentive for the partners to cooperate in avoiding detection. The total cost of transacting in the illegal sector can fall, and tax evasion may increase. The policy implications of this phenomenon are considered. JEL Classification: H26
L'évasion fiscale collective. Dans les analyses de l'évasion fiscale, on suppose habituellement que le payeur de taxe fait face à un ensemble donné de politiques auxquelles il réagit. Pourtant, dans le cas des transactions marchandes, l'évasion fiscale n'est possible que si plusieurs agents coopèrent ensemble. La probabilité que l'évasion soit détectée dépend alors des efforts que chacun fait pour la cacher. Dans un tel contexte, de plus lourdes sanctions accroissent le coût espéré des transactions illégales, mais peuvent aussi, indirectement, accroître l'incitation pour les partenaires à coopérer pour cacher leur activité illégale. Il en résulte que le coût total des transactions illégales peut diminuer et l'évasion fiscale augmenter. Nous étudions les implications de ce phénomène.     

Getting the word out: Enforcement information dissemination and compliance behavior

The question for the tax authority is how individuals become aware of enforcement effort. To be an effective tool in reducing tax evasion taxpayers must be aware of the current audit and penalty regime. We use laboratory experiments to examine the compliance impact of types of information dissemination regarding audit frequency and results. The information includes “official” information disseminated by the tax authority, and “unofficial”, or informal, communications among taxpayers. Our results indicate that the effect of the type of post-audit information is conditional on whether the taxpayer is well informed of the audit rate prior to filing. We find that the tax authority would be served by pre-announcing audit rates credibly and by emphasizing the previous period audit frequency in annual reporting of enforcement effort.     

Tax evasion policies and the demand for cash

This paper analyzes the relationship between tax evasion and the demand for cash by studying the effects of two measures to fight evasion: accessing taxpayers’ bank data and imposing thresholds for cash payments. We study the effects of these policies in Italy, where visibility of bank data and cash thresholds were recently increased. We show that both significantly affected cash holdings, which grew by about 1.5 percent of the GDP. Using unique high frequency data on cash operations and exploiting regional heterogeneity in tax evasion propensity, we find that accessing bank data pushes regions with higher propensity to evade taxes to convert more deposits into cash. On the contrary, higher cash thresholds do not increase cash holdings more in these regions. We rationalize the findings with a simple model of tax evasion and payment choices, where cash and deposits have different degrees of privacy.     

国际洗税行为分析

近年来 ,在中国境内 ,跨国纳税人从事国际逃税、国际避税活动屡见不鲜 ,出口骗税十分猖獗。阿林汉姆 -桑德姆预期效用最大模型、本杰米尼 -梅塔尔逃税决策相互依赖模型等理论对此不能作出恰当的解释。本文首次揭示了国际洗税行为 ,并发现上述跨国纳税人纳税不服从行为与国际洗税密切相关。本文还通过建立一个博弈模型对国际洗税内在动机进行了剖析 ,并在此基础上提出了政策建议。     

How do contribution limits affect contributions to tax-preferred savings accounts?

Contributions to tax-preferred savings accounts are typically constrained by a contribution limit. These limits influence contributions not only for taxpayers currently constrained by the limit, but also for those contributing less than the limit. I develop a simple life-cycle model in which taxpayers exhibit ‘use it or lose it’ contribution behavior. This connects current contributions to future contribution limits, and implies that an increase in contribution limits can decrease contributions. Empirical evidence from microdata provides support for the model. Using variation from Canadian limit reforms I find that larger future contribution room is associated with smaller contributions.     

基于心理契约的中西方税收文化差异比较

心理契约不仅存在于雇佣双方之间，也存在于其他社会群体之间，包括税收征纳主体之间。税收心理契约至少存在两个层次：一是纳税人和用税人之间的心理契约；二是纳税人和征税人之间的心理契约。中西方正是在这两个层次上的心理契约存在着差异，从而导致在税收文化上呈现不同的特点。     

Do your tax problems make tax evasion seem more justifiable? Evidence from a survey experiment

Taxpayers often view tax rules and filing processes as complicated. I study whether the perceived tax uncertainty among peers makes tax evasion more acceptable among the general public. I find strong supportive evidence for this hypothesis using a survey experiment and a large representative sample of the German population. Providing randomized information that others are uncertain about how to file their taxable income decreases individual support for tax compliance. This suggests that subjects judge tax evasion less harshly in response to this peer information. Studying related heterogeneous treatment effects, I find that both older and left-wing subjects are more responsive to tax uncertainty of others. Less harsh views on evasion are persistent for very high compliance levels in a follow-up survey.     

Is Social Security Really Bad for Growth?

This paper develops a model of endogenous growth with overlapping generations to investigate the joint determination of social security, public investment, and growth in a small open economy. We show that a pure pay-as-you-go system with benefits indexed to wages provides taxpayers with incentives to support growth-oriented policies, which increase the future productivity of labor. We find that outcomes characterized by positive levels of intergenerational redistribution, public investment, and long-run growth can be sustained as subgame-perfect Nash equilibria of an infinitely repeated intergenerational game, if and only if the marginal productivity of public capital is large enough. Furthermore, we show that transfers comove with public investment and growth. Journal of Economic Literature Classification Numbers: E62, H55.     

FAIR DAIRY POLICY

Dairy policy in the United States has gone through many changes over the years, but the basic instruments have remained in place for decades. The Federal Agricultural Improvement and Reform (FAIR) Act of 1996 is best seen as a relatively small scale reform of dairy policy. Most of the income transfers from consumers and taxpayers to dairy farms remain intact, and the major economic distortions are unaffected. The major change from phasing out price support program is more one of form rather than substance. Some consider this a fundamental shift in U.S. dairy policy, but its quantitative impact is likely to be minor. Further, because dairy assessments associated with the price support are eliminated immediately, the net transfer from taxpayers to the dairy industry is likely to be higher than it would be if the price support program were left in place. This paper reviews the effects of this change and other dairy policy provisions in the FAIR Act and compares the implications of the new dairy program to implications of three alternatives: continuing the previous program, eliminating marketing orders and the price support program, and eliminating all policy interventions including import barriers.     

Audit Misperception, Tax Compliance, and Optimal Uncertainty

The purpose of this paper is to shed light on the role of taxpayers’ misperceptions in determining compliance behavior. This paper also analyzes the effect of increased randomness on evasion, revenue, and welfare. Whether or not individuals choose to evade taxes depends on the perceived audit probability and on the fraction of honest taxpayers in the population. When individuals know the precise probability of audit, the model becomes in effect a game of coordination, a situation that gives rise to multiple equilibria. This paper incorporates audit misperception by introducing a small amount of uncertainty about the true audit probability. With the introduction of this uncertainty, we verify that there is a unique equilibrium cutoff point, such that each taxpayer evades if and only if his perceived signal falls below this cutoff. It is argued that this unique equilibrium outcome fares better than others in explaining empirical and experimental observations. We also find that, when reducing uncertainty has no cost, the optimal uncertainty is generally indeterminate, even when including zero uncertainty. Finally, we show that, when reducing uncertainty is costly, eliminating all uncertainty can never be optimal. In the limit as this cost vanishes, the optimal uncertainty is unique, meaning that introducing a small amount of enforcement cost resolves the indeterminacy problem.