 Reference dependent preferences, hedonic adaptation and tax evasion: Does the tax burden matter?Michele Bernasconi, Luca Corazzini and Raffaello Seri Journal of Economic Psychology, 2014, vol. 40, issue C, 103-118 Abstract: 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 new predictions on how a change in the tax rate affects the decision to evade taxes. Contrary to the classical expected utility theory, but in line with previous applications of reference dependent preferences to taxpayers’ decisions, an increase in the tax rate increases tax evasion. Moreover, as taxpayers adapt to the new legal tax rate, the decision to evade taxes becomes independent of the tax rate. We present results from a laboratory experiment that support the main predictions of the model. Keywords: Tax evasion; Prospect theory; Adaptation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:joepsy:v:40:y:2014:i:c:p:103-118 DOI: 10.1016/j.joep.2013.01.005 Access Statistics for this article Journal of Economic Psychology is currently edited by G. Antonides and D. Read More articles in Journal of Economic Psychology from Elsevier |
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