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Rank-Dependent Utility, Tax Evasion, and Labor Supply

Erling Eide (), Kristine von Simson and Steinar Strøm

FinanzArchiv: Public Finance Analysis, 2011, vol. 67, issue 3, 261-281

Abstract: In a portfolio model of tax evasion an expected utility maximizer will cheat more than what is estimated in empirical studies. At least two types of explanation have been suggested as solutions to this puzzle: (1) taxpayers act according to some unexpected utility theory, and (2) individual ethical norms and social stigma induce people not to cheat. Based on Norwegian survey data, we find that a rank-dependent expected-utility model performs better than an expected-utility model and that social norms matter in explaining behavior.

Keywords: labor supply; tax evasion; rank-dependent utility (search for similar items in EconPapers)
JEL-codes: C25 D12 D81 H26 J22 (search for similar items in EconPapers)
Date: 2011
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DOI: 10.1628/001522108X600597

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