Collusive tax evasion and social norms

Martin Abraham, Kerstin Lorek, Friedemann Richter and Matthias Wrede
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Martin Abraham: Friedrich-Alexander University Erlangen-Nürnberg (FAU)
Kerstin Lorek: Friedrich-Alexander University Erlangen-Nürnberg (FAU)
Friedemann Richter: Friedrich-Alexander University Erlangen-Nürnberg (FAU)

International Tax and Public Finance, 2017, vol. 24, issue 2, No 1, 179-197

Abstract: Abstract Although collusive tax evasion by buyers and sellers of commodities and also by employers and employees is widespread all over the world, it has rarely been analyzed in the tax evasion literature. To fill this gap and to compare collusive tax evasion with independent tax evasion, this paper develops a simple noncooperative game-theoretic model and confirms the model’s predictions in a laboratory experiment. Because collusive tax evasion involves social interaction, this paper focuses on the effect of social norms and theoretically and empirically demonstrates that the tax compliance norm has a stronger negative effect on the magnitude of collusive tax evasion than on independent tax evasion. The reason for this result is that in a collusive tax evasion game with multiple equilibria social norms affect the range of equilibria and act as an equilibrium selection device, whereas social norms need to be strongly internalized to change the behavior of taxpayers who evade taxes unobservedly.

Keywords: Collusive tax evasion; Third-party reporting; Social norms (search for similar items in EconPapers)
JEL-codes: A13 H26 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (30)

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Related works:
Working Paper: Collusive Tax Evasion and Social Norms (2015)
Working Paper: Collusive Tax Evasion and Social Norms (2015)
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DOI: 10.1007/s10797-016-9417-0

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