Tax Evasion, Tax Rates, and Reference Dependence

Michele Bernasconi () and Alberto Zanardi

FinanzArchiv: Public Finance Analysis, 2004, vol. 60, issue 3, 422-445

Abstract: Using cumulative prospect theory as a notable example of reference-dependent preference, we revisit the basic portfolio model of tax evasion. We show that some controversial implications of the standard expected-utility theory, including that of a negative relationship between tax rates and evaded income, can be corrected in a direction more consistent with intuition and empirical evidence.

Keywords: tax evasion; reference income; prospect theory (search for similar items in EconPapers)
JEL-codes: D81 H24 H26 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (58)

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