Social norms and economic growth in a model with labor and capital income tax evasion

Carlos Bethencourt and Lars Kunze

Economic Modelling, 2020, vol. 86, issue C, 170-182

Abstract: Empirical evidence suggests that low-income countries are characterized by high levels of labor and capital income tax evasion while the opposite is true for high-income countries. This paper proposes a model to study the relationship between economic growth and both types of income tax evasion. We show that the existence of a social norm towards tax compliance generates a complementarity between capital and labor income tax evasion which explains the decline of both the share of evaders in the population and the amount of tax evasion when countries accumulate capital. The model predicts that the level of tax morale is positively correlated with both types of income tax evasion and the level of income per capita, consistent with recent empirical evidence. Finally, a higher tax rate increases the share of evaders in the population and aggregate tax evasion.

Keywords: Income tax evasion; Social norms; Economic growth (search for similar items in EconPapers)
JEL-codes: D11 D91 H26 Z13 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:86:y:2020:i:c:p:170-182

DOI: 10.1016/j.econmod.2019.06.009

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