We extend the standard, one-period model of tax evasion to an intertemporal framework in which an expected-utility-maximizing taxpayer updates expectations about the probability of a future audit based on past audit experience. This framework provides a theoretical grounding for the empirical evidence indicating that tax evasion is affected by taxpayers' perceptions of audit probabilities and i...

This paper attempts to estimate the size and distribution of tax evasion in rich countries. We combine random audits—the key source used to study tax evasion so far—with new micro-data leaked from large offshore financial institutions—HSBC Switzerland (“Swiss leaks”) and Mossack Fonseca (“Panama Papers”)—matched to population-wide wealth records in Norway, Sweden, and Denmark. We find that tax ...

We incorporate the behaviour of tax evasion into the standard two-dimensional Ising model and augment it by providing policy-makers with the opportunity to curb tax evasion via an appropriate enforcement mechanism. We discuss different network structures in which tax evasion may vary greatly over time if no measures of control are taken. Furthermore, we show that even minimal enforcement levels...

Tax Evasion, Welfare Fraud, and “The Broken Windows” Effect: An Experiment in Belgium, France and the Netherlands In a series of experiments conducted in Belgium (Wallonia and Flanders), France and the Netherlands, we compare behavior regarding tax evasion and welfare dodging, with and without information about others’ behavior. Subjects have to decide between a ‘registered’ income, the realiza...

We study the effects of the tax burden on tax evasion both theoretically and experimentally. We develop a theoretical framework of tax evasion decisions that is based on two behavioral assumptions: (1) taxpayers are endowed with reference dependent preferences that are subject to hedonic adaptation and (2) in making their choices, taxpayers are affected by ethical concerns. The model generates ...

All opinions expressed here are those of the authors and not those of the Economics Education and Research Consortium Research dissemination by the EERC may include views on policy, but the EERC itself takes no institutional policy positions This paper considers the problem of determining the optimal taxation for a group of individuals with random, independent and identically distributed income...

We build a model where a buyer negotiates a price discount with a seller in exchange for not asking the receipt and paying in cash, allowing tax evasion. Sellers and buyers are heterogeneous with respect to their tax morale and to their cost of managing payment instruments different from cash. We study how a tax rebate for the buyer and a tax on cash withdrawals affect tax evasion and governmen...

An endogenous growth model is examined where individuals optimize consumption and tax evasion over time given the tax structure and tax compliance policy of the government. Applying methods of stochastic optimal control, the individual’s problem is solved and the rate of economic growth is derived. It is shown that for a given tax policy tax evasion spurs growth because it leads to higher savin...

This article incorporates tax evasion into an optimum taxation framework with individuals di ering in earning abilities and initial wealth. We nd that despite the possibility of its evasion a tax on initial wealth should supplement the optimal nonlinear income tax, given a positive correlation between initial wealth and earning abilities. Further, even if income and initial wealth are taxed opt...