Tax Evasion and Exchange Equity: A Reference-Dependent Approach

Matthew Rablen

Public Finance Review, 2010, vol. 38, issue 3, 282-305

Abstract: The standard portfolio model of tax evasion with a public good produces the perverse conclusion that when taxpayers perceive the public good to be under-/overprovided, an increase in the tax rate increases/decreases evasion. The author treats taxpayers as thinking in terms of gains and losses relative to an endogenous reference level, which reflects perceived exchange equity between the value of taxes paid and the value of public goods supplied. With these alternative behavioral assumptions, the author overturns the aforementioned result in a direction consistent with the empirical evidence. The author also finds a role for relative income in determining individual responses to a change in the marginal rate of tax.

Keywords: exchange equity; tax compliance; reference-dependent utility; prospect theory; relative income (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:pubfin:v:38:y:2010:i:3:p:282-305

DOI: 10.1177/1091142110367858

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