Tax Evasion and Relative Tax Contribution

Judith Panadés
Authors registered in the RePEc Author Service: Judith Panadés ()

Public Finance Review, 2004, vol. 32, issue 2, 183-195

Abstract: This article analyzes the relationship between tax rate levels and tax evasion in a context where the utility of a taxpayer depends on both his or her own consumption and relative position with respect to the average declared income of the economy. In this framework, if the taxpayer declares an amount of his or her income greater (smaller) than the average of the economy, that person’s utility will decrease (increase). The author shows that, if the externality from the others’ declared income is taken into account, several equilibria arise in the economy. Then, an increase in the tax rate leads to a larger amount of unreported income at the equilibrium displaying the lowest income reports. This comparative statics result agrees with most of the existing empirical evidence.

Date: 2004
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:32:y:2004:i:2:p:183-195

DOI: 10.1177/1091142103261674

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