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Social Interaction in Tax Evasion

Vilen Lipatov

MPRA Paper from University Library of Munich, Germany

Abstract: We analyze the tax evasion problem with social interaction among the taxpayers. If the authority commits to a fixed auditing probability, a positive share of cheating is obtained in equilibrium. This stands in contrast to the existing literature, which yields full compliance of audited taxpayers who are rational and thus do not need to interact. When the authority adjusts the auditing probability every period, cycling in cheating-auditing occurs. Thus, the real life phenomenon of compliance fluctuations is explained within the model rather than by exogenous parameter shifts. Our analysis can also be applied to crime, safety regulations, employment and environmental protection, as well as other compliance problems.

Keywords: tax evasion; learning; social interaction; behavioral rule; compliance (search for similar items in EconPapers)
JEL-codes: C79 D83 H26 K42 (search for similar items in EconPapers)
Date: 2008-03-28
New Economics Papers: this item is included in nep-acc, nep-law and nep-soc
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