bureaucratic minimal squawk behavior theory and evidence from regulatory agencies this paper develops a model in which a desire to avoid criticism prompts otherwise public spirited bureaucrats to behave inefficiently decisions are taken to keep interest groups quiet and to keep mistakes out of the public eye the policy implications of this minimal squawk behavior are at odds with the view that agencies should be structured to minimize the threat of capture an empirical test using data from us state public utility commissions rejects the capture hypothesis and is consistent with the squawk hypothesis longer puc terms of office are associated with a higher incidence of rate reviews and lower household electricity bills jel d73 l51 l97 l98

applications of behavioural economics to tax evasion the paper reviews recent models that have applied the techniques of behavioural economics to the analysis of the tax compliance choice of an individual taxpayer the construction of these models is motivated by the failure of the yitzhaki version of the allingham sandmo model to predict correctly the proportion of taxpayers who will evade and the effect of an increase in the tax rate upon the chosen level of evasion recent approaches have applied non expected utility theory to the compliance decision and have addressed social interaction the models we describe are able to match the observed extent of evasion and correctly predict the tax effect but do not have the parsimony or precision of the yitzhaki model

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

the changing public role in agricultural extension abstract the public sector extension services in which governments of less developed countries ldcs have invested large sums often at the behest of donors are achieving uneven impact often at unsustainably high costs further the fundamental premise of public sector extension that low income farmers are unlikely to obtain technical information unless it is provided by government increasingly requires re examination this paper reviews the pressures facing conventional agricultural extension examines the prospects of recent approaches that are participatory institutionally pluralistic and geared towards cost sharing and suggests ways forward for governments

what does tax aggressiveness signal evidence from stock price reactions to news about tax shelter involvement abstract we study the stock price reaction to news about corporate tax aggressiveness we find that on average a company s stock price declines when there is news about its involvement in tax shelters we find some limited evidence for cross sectional variation in the reaction for example the reaction is more negative for firms in the retail sector suggesting that part of the reaction may be a consumer taxpayer backlash in addition the reaction is less negative for firms that are viewed to be generally less tax aggressive as proxied by the firm s cash effective tax rate we interpret this as being consistent with the market reacting positively to evidence that a firm is trying to reduce taxes when their financial reports would lead one to believe the firm is not tax aggressive

tax evasion on a social network abstract we relate tax evasion behavior to a substantial literature on social comparison in judgements taxpayers engage in tax evasion as a means to boost their expected consumption relative to others in their social network the unique nash equilibrium of the model relates optimal evasion to a bonacich measure of network centrality more central taxpayers evade more given that tax authorities are now investing heavily in big data tools that aim to construct social networks we investigate the value of acquiring network information we do this using networks that allow for celebrity taxpayers whose consumption is seen widely and who are systematically of higher wealth we show that there are pronounced returns to the initial acquisition of network information especially in the presence of celebrity taxpayers

inflation and tax evasion an empirical analysis this paper contains an analysis of the effect of inflation on aggregate tax evasion in the united states over the period 1947 81 it is found that tax evasion in both absolute and relative terms is positively related to the inflation rate further the results indicate that aggregate evasion has risen in both absolute and relative terms with increases in the marginal tax rate but has fallen with increases in the detection probability the penalty rate and the wage share of income finally evasion has risen in absolute terms but has fallen in relative terms when real true income has risen

task specific experience and task specific talent decomposing the productivity of high school teachers abstract we use administrative panel data to decompose worker performance into components relating to general talent task specific talent general experience and task specific experience we consider the context of high school teachers in which tasks consist of teaching particular subjects in particular tracks using the timing of changes in the subjects and difficulty levels to which teachers are assigned to provide identifying variation we show that a substantial part of the productivity gains to teacher experience are actually subject specific similarly while three quarters of the variance in the permanent component of productivity among teachers is portable across subjects and levels there exist non trivial subject specific and level specific components counterfactual simulations suggest that maximizing the test score contribution of task specific experience and task specific talent can increase student performance by as much as 04 test score standard deviations relative to random assignment of teachers to classrooms

bonuses and promotion tournaments theory and evidence standard models of promotion tournaments do not distinguish between wages and bonuses and thus cannot explain variation in the use of bonuses we combine classic and market based tournament theories to develop a model in which wages and bonuses serve distinctly different roles we use this model to derive testable predictions which we test employing both a single firm data set and a data set encompassing a large segment of the finnish economy our empirical analysis supports the testable predictions and shows that our theoretical approach better matches the data than alternative theories of bonus determination based on arguments already in the literature

task specific human capital since gary becker s 1964 seminal work the theoretical and empirical literature on human capital has focused almost exclusively on general purpose and firm specific human capital in this paper we discuss the implications of a third type of human capital which we call task specific and which we believe is potentially as commonplace and as important as the two classic types by task specific human capital we mean that some of the human capital an individual acquires on the job is specific to the tasks being performed as opposed to being specific to the firm in other words task specific human capital is the simple but plausible idea that much of the human capital accumulated on the job is due to task specific learning by doing the idea of task specific human capital is closely related to occupationand industryspecific human capital in each case human capital is specific to the nature of the work not specific to the firm hence when capital is accumulated multiple firms value the capital so most or even all of the value of the capital will be reflected in the worker s wage the main difference between the idea of task specific human capital and occupationand industryspecific human capital is in how the idea is applied we argue that task specific human capital has much wider applicability than suggested so far by the occupationand industry specific human capital literatures the specific issues we address are cohort effects job design and promotions another argument in the literature closely related to ours is the classic argument of adam smith 1776 in the wealth of nations concerning returns to specialization smith s argument was that due to learning by doing at the level of the task productivity can be enhanced by having each job entail fewer tasks we believe that smith was correct in focusing on learningby doing at the level of the task as an important idea for thinking about organizations the goal of our paper is to describe some of the other implications of this idea for the design and operation of organizations

taxman s dilemma coercion or persuasion evidence from a randomized field experiment in ethiopia we analyze data from a randomized controlled trial of two innovative anti tax evasion schemes in ethiopia that signal threats of audit and complimentary messages that encourage tax morale our results indicate that the threat of audit reduces tax evasion significantly and its effect is higher in businesses commonly suspected of high tax evasion rates we also find that appealing to the tax morale promotes compliance but slightly less than that of audit threat our results are robust to different estimation strategies and less sensitive to potential confounding factors

optimal taxation in the presence of tax evasion expected utility versus prospect theory abstract it is now well known that the predictions of expected utility theory eut applied to tax evasion are quantitatively and qualitatively at variance with the evidence while prospect theory pt makes the correct predictions in this literature the tax rate is exogenous we endogenize the tax rate and require that a successful theory should explain jointly the facts on the tax rate tax gap and the level of government expenditure we find that the data is best described by taxpayers using pt and the government using standard utility theory eut the results are robust to several possible alternative specifications we discuss how our results have a bearing on the debate between liberalism versus paternalism in behavioral economics we also propose an alternative explanation based on the notion of context dependent preferences

culture compliance and confidentiality taxpayer behavior in the united states and italy the experimental economics center and the department of economics of the andrew young school of policy studies georgia state university atlanta ga and the center for experimental economics at fondazione university ca foscari italy

realigning research and extension to focus on farmers constraints and opportunities this paper argues that research and extension have failed to 1 develop technologies that take into account farmers resource constraints and risks and 2 improve farmers capacity to adapt technologies to their own situations the paper critiques continued use of blanket high dose fertilizer recommendations arguing for approaches that teach farmers how to maximize returns from smaller more affordable input purchases developingsuch technologies requires that researchers integrate a wider range of stakeholders farmers extension agents agricultural exporters and processors into research activities at an earlier point in time than has been the case although evidence that these new approaches are increasing the use of purchased inputs remains weak a number of important lessons are emerging about how research and extension outcomes are influenced by institutional culture and incentives the authors conclude that developingrecommendations for small affordable input doses and trainingfarmers so they can adapt recommendations to their particular circumstances is as much an institutional challenge as a technology challenge 2003 elsevier ltd all rights reserved

pay reference points and police performance several theories suggest that pay raises below a reference point will reduce job performance final offer arbitration for police unions provides a unique opportunity to examine these theories as the police officers either receive their requested wage or receive a lower one in the months after new jersey police officers lose in arbitration arrest rates and average sentence length decline and crime reports rise relative to when they win these declines in performance are larger when the awarded wage is further from the police union s demand the findings support the idea that considerations of fairness disappointment and more generally reference points affect workplace behavior

corruption fertility and human capital abstract we build an overlapping generations model in which reproductive households face a child quantity child quality trade off and bureaucrats are delegated with the task of delivering public services that support the accumulation of human capital by integrating the theoretical analyses of endogenous growth corruption and fertility choices we show that the negative relation between fertility and economic development may also be affected by differences in the magnitude of bureaucratic corruption

search and taxation in a model of underground economic activities i introduction it is widely recognized that one major effect of taxation is to stimulate activities in the so called underground or shadow economy indeed the extent of underground activities even in the western countries is by no means negligible schneider and enste 2000 report that the size of the shadow economy as percent of gross domestic product gdp in the organisation for economic co operation and development oecd countries in 1996 ranged from 7 5 in switzerland to 28 5 in greece this existence of underground activity is a significant source for concern the possibility of evading taxes makes taxation less efficient by undermining the tax base this possibility may jeopardize long run scope for financing adequate public services furthermore it implies that official measures of for example income and unemployment which form the basis for policy will necessarily be biased the purpose of this article is to suggest a simple micro founded framework for studying the relationship between tax policy and underground economic activities a defining characteristic of the latter is that they are illegal 1 the traditional approach starting with the seminal contribution of allingham and sandmo 1972 characterizes tax evasion as an activity for which there is a risk of detection 2 this approach however does not particularly highlight that underground economic activity involves trade we argue that although underground economic activities and regular activities are similar and can coexist one effect of the illegal status of the former is to differentiate the amount of information that is available in the two market segments whereas information about trading opportunities in regular markets can be assumed to be perfect because underground activity is by definition furtive information about trading opportunities in this segment will be less than perfect traditionally search theory has been used to capture the notion of imperfect information in markets this has a natural interpretation in the current context though trading in the regular market can be regarded as frictionless an agent wishing to trade in the underground sector must devote some time and effort to locating trustworthy trading partners with whom he or she can trade illegally at no risk hence we model underground trade as the outcome of a standard bilateral search process where buyers and sellers devote some time to locating each other and implicitly verifying each others trustworthiness 3 this process individually rational when facing taxes is a socially wasteful activity because it subtracts effort from physical production the model identifies a natural link between participation in the underground economy and individual characteristics this is important for analysis of micro level data our model suggests that individuals with lower earnings capacity are more active in underground economic activities hence the model predicts a negative correlation between individual participation in the underground economy and for example hourly wage and education from the evidence that is available this seems consistent with the data 4 the current model can be used as a framework for future empirical work using micro data because it can fairly easily be extended to include other features such as unemployment and variation across industries in the technology available for underground production to make further predictions about individual involvement in underground activities the systematic relation between earnings capacity and participation in the underground economy is also relevant for policy design consider the implementation of a redistributive tax although the tax aims at improving the welfare of the individuals with low earnings capacity the same individuals can benefit from trading in a relatively large underground economy if the tax is only mildly enforced

macroeconomic effects of corporate tax policy abstract prior studies on the relation between corporate taxes and future macroeconomic growth present contradictory evidence we argue this mixed evidence is at least partly due to the use of statutory corporate tax rates which ignore the complexity of tax exemptions tax deductions tax enforcement and firms tax planning we propose an alternative tax rate measure that aggregates cash effective tax rates of listed firms which reflect not only statutory tax rates but also other features of the tax code enforcement and firms tax planning we find a strong robust negative relation between country level effective tax rates and future macroeconomic growth

individual morality and reputation costs as deterrents to tax evasion abstract empirical evidence suggests some taxpayers never evade evasion increases with the tax rate and evasion decisions are interdependent these findings are not easily explained by the existing theory which models evasion as an independently made amoral gamble this paper uses nonpecuniary costs of evasion to reconcile theory with evidence once individuals are assumed to differ by an honesty characteristic taxpayers dichotomise into groups the more honest of which responds to a tax change as the evidence suggests a further extension is to introduce an endogenous reputation cost this suggests a positive relationship between the number of evaders and the tax rate

contract farming configuration smallholders preferences for contract design attributes while contract farming cf can enhance smallholders income in developing countries empirical research on the motivation of smallholders to participate in cf is scarce this paper explores farmer preferences for particular contract design attributes we combined analytical hierarchy process and discrete choice experiments to investigate the importance of contract design attributes on the basis of data collected among potato farmers in ethiopia we found that input market uncertainty is more important than output market uncertainty in smallholders decision to participate farmers tend to minimize their risk by opting for the buyer firm above the state and ngos as providers of seed inputs and technical assistance the results imply that the success of a cf scheme depends on the willingness of the firm to incorporate the preferred contract design attributes institutional intervention in the input market could induce agribusiness firms to offer attractive contracts for smallholders

regulatory performance of audit tournaments and compliance observability this paper examines the effectiveness of traditional regulatory schemes and newly emerging social information schemes for achieving compliance our experiment focuses on two stochastic audit schemes for enforcing regulatory compliance in the random audit mechanism firms are randomly chosen for inspection in the tournament audit mechanism the probability of inspection increases with the degree of estimated underreporting to study the effects of social information the experiment varies the observability of identity output and compliance decisions optimal output is theoretically independent of the auditing scheme but equilibrium reporting is higher under the tournament mechanism than random auditing experimental findings are broadly consistent with the theoretical predictions for reporting but deviate modestly for output in particular we find that average output is lower and reporting is higher in the tournament treatment compared to the random audit treatment at the individual level a majority of participants misreported in most periods social observability does not affect output or reporting significantly in either of the audit treatments

the tax evasion social multiplier evidence from italy we estimate social externalities of tax evasion in a model where congestion of the auditing resources of local tax authorities generates a social multiplier identification is based on a contrast of the variance of tax evasion at different levels of aggregation we use a unique data set that contains audits of about 80 000 small businesses and professionals in italy and also provides an exact measure of reference groups in our model we find a social multiplier of about 3 which means that the equilibrium response to a shock that induces an exogenous variation in mean concealed income is about 3 times the initial average response this is a short run effect that persists to the extent that auditing resources are not adjusted to internalize the congestion externality

labor unions and tax aggressiveness abstract we examine the impact of unionization on firms tax aggressiveness we find a negative association between firms tax aggressiveness and union power and a decrease in tax aggressiveness after labor union election wins this relation is consistent with labor unions influencing managers in one or both of two ways 1 constraining managers ability to invest in tax aggressiveness through increased monitoring or 2 decreasing returns to tax aggressiveness that arise from unions rent seeking behavior we also find preliminary evidence that the market expects these reductions around union elections and discounts firms that likely add shareholder value via aggressive tax strategies

enforcement socioeconomic diversity and tax filing compliance in the united states in this article we examine the determinants of tax filing compliance in the united states we use county level data on non filing rates for the tax year 2000 obtained directly from the internal revenue service we include explanatory variables identified in the rational compliance framework including an enforcement index against identified non filers the audit rate of filers and the average penalty rate for both filers and non filers we also examine the role of socioeconomic diversity on tax compliance testing whether within county heterogeneity in household income language race and religion can help explain variation in non filing rates we find that non filing is increasing with heterogeneity by race although not by income or language and that non filing is decreasing with heterogeneity by religious membership as for enforcement variables we find that non filing rates tend to fall with the enforcement index other variables have somewhat mixed results

getting the word out enforcement information dissemination and compliance behavior the question for the tax authority is how individuals become aware of enforcement effort to be an effective tool in reducing tax evasion taxpayers must be aware of the current audit and penalty regime we use laboratory experiments to examine the compliance impact of types of information dissemination regarding audit frequency and results the information includes official information disseminated by the tax authority and unofficial or informal communications among taxpayers our results indicate that the effect of the type of post audit information is conditional on whether the taxpayer is well informed of the audit rate prior to filing we find that the tax authority would be served by pre announcing audit rates credibly and by emphasizing the previous period audit frequency in annual reporting of enforcement effort

why do people pay taxes prospect theory versus expected utility theory abstract using actual probabilities of audit and penalty rates the return on evasion is 91 98 so why do not most of us evade existing analysis based on expected utility theory eut is unable to explain this furthermore and contrary to intuition and the bulk of evidence eut predicts that evasion should be decreasing in the tax rate yitzhaki puzzle we apply tversky and kahneman s tversky a kahneman d 1992 advances in prospect theory cumulative representation of uncertainty journal of risk and uncertainty 5 297 323 cumulative prospect theory to tax evasion we show that prospect theory provides a much more satisfactory account of tax evasion including an explanation of the yitzhaki puzzle this also provides independent confirmation of prospect theory

an economic model of welfare stigma perhaps the most basic assumption of the economic theory of consumer demand is that more is better than less virtually all of the major propositions of consumer theory can in a certain sense be derived from the assumption that goods are good interestingly however this tenet seems to be violated by the behavior of many individuals in the low income population for many turn out to be eligible for a positive welfare benefit but do not in fact join the welfare rolls for example it has been estimated that in 1970 only about 69 percent of the families eligible for afdc aid to families with dependent children participated in the program see richard michel 1980 the corresponding percentage for afdc u the program for which families with an unemployed male are eligible was only 43 percent and the participation rate in the food stamp program was only 38 percent see maurice mcdonald 1977 this phenomenon has puzzled many investigators because such individuals do not locate on the boundaries of their budget sets consequently most investigators ignore the problem when studying the effects of welfare programs on behavior in this paper this seemingly irrational rejection of an increase in income is modeled as resulting from welfare stigma that is from disutility arising from participation in a welfare program per se 1 the existence of stigma has been amply documented in the sociological literature patrick horan and patricia austin 1974 lee rainwater 1979 where interviews of recipients have often uncovered feelings of lack of self respect and negative self characterizations from participation in welfare nevertheless this phenomenon has not been modeled and many questions consequently remain when is the disutility of participation strong enough to prevent participation shouldn t we expect individuals to weigh the disutility of participation against the potential benefit in their decisions what is the elasticity of participation with respect to the potential benefit also in a slightly different vein how are the work disincentives of welfare affected by stigma these questions have been given scant attention by economists yet they are crucial for our ability to predict the impact of various welfare programs on the lowincome population here these questions are addressed by modeling nonparticipation as a utility maximizing decision the model is developed and estimated for the afdc program 2 the model posits an individual utility function containing not just disposable income but

income distribution and equilibrium multiplicity in a stigma based model of tax evasion abstract this paper incorporates continuous income distribution into the stigma based model of tax compliance the paper investigates the effect of income distribution on the existence of multiple equilibria and characterizes the conditions under which multiple equilibria emerge precisely multiple equilibria exist if taxpayer incomes are sufficiently homogeneous because the social coordination effect dominates the individual characteristics effect numerical simulations show that the main proposition is robust to allowing two step audit policies on the part of the tax agency under the presumption that the best or good equilibrium is selected whenever there are multiple equilibria as a byproduct the effect of various forms of tax reforms on the optimal two step audit policy the equilibrium compliance and fiscal revenue is analyzed

tenure experience human capital and wages a tractable equilibrium search model of wage dynamics we develop and estimate an equilibrium job search model of worker careers allowing for human capital accumulation employer heterogeneity and individual level shocks wage growth is decomposed into contributions of human capital and job search within and between jobs human capital accumulation is largest for highly educated workers the contribution from job search to wage growth both within and between job declines over the fi rst ten years of a career the job shopping phase of a working life after which workers settle into high quality jobs using outside o ffers to generate gradual wage increases thus reaping the bene fits from competition between employers

plea bargaining with the irs extensions and further results abstract chu journal of public economics 41 1990 319 333 proposes a tax scheme called fatota under which taxpayers are given the choice between paying a fixed amount of taxes and thus being exempted from tax audit or paying only what taxpayers claim they owe and being subject to tax audits for possible evasion in this paper we extend chu s finding with regard to the pareto improving property of fatota to a more general setting including nonlinear tax penalty schedules complicated audit rules and endogenous labor supply we also show that any tax system in which the highest income taxpayer faces audit risk and or tax distortion can be pareto improved upon by the introduction of fatota we relate this result to seade s journal of public economics 7 1977 203 235 celebrated finding in the optimal taxation literature that any income tax schedule with a positive marginal tax rate at the top of the scale can be replaced by another tax schedule which is strictly pareto improving

political economy at any speed what determines traffic citations can speeding tickets be explained solely by a driver s excessive speed or could they be seen as serving as supplemental local revenue or reflecting officer preferences theory suggests that the levels of enforcement and punishment for traffic violations are based on the degree of infringe ment by the offending party and the marginal returns to local safety gary s becker 1968 isaac ehrlich 1996 a mitchell polinsky and steven shavell 1992 this view neglects other potential objectives for the police police officers are agents of the local or state government these prin cipals may be concerned about total revenues raised and about voter satisfaction furthermore officers may have personal preferences with regards to characteristics such as race or gender which may motivate differential issuance of traffic tickets the imposition of traffic fines to increase revenues is reminiscent of william a niskanen s 1971 long standing hypothesis that bureaucrats maximize their agency s budget evidence has been scarce however and the hypothesis has been called into question because bureaucrats may not receive any direct benefit when their agency s budget size is enlarged ronald n johnson and gary d libecap 1994 the budget maximizing hypothesis however has not been applied to the behavior of police officers engaged in the enforcement of traffic laws although anecdotal evidence abounds1 more frequent and larger fines may lead to favorable employee evaluations and contribute to a larger budget for the police department higher officer salaries and improved amenities as police officers monitoring superiors are elected officials those officials may also encourage police officers to disproportionately raise revenues from nonvoters as opposed to local voting citizens

learning the ropes general experience task specific experience and the output of police officers abstract we estimate the role that law enforcement officer experience has on the probability of punishment using a unique data set of tickets issued by the idaho state police linked to human resource records all else equal officers issue fewer tickets earlier in their career than later in their career quasi exogenous shocks to an officer s task specific experience generated by law changes cause a temporary reduction in the frequency with which a subset of troopers use those laws creating disparities in the likelihood that individual citizens are cited for law violations the reduction in ticketing in response to a law change is largest for newer troopers and law changes later in a trooper s career have a smaller effect on his use of that law

corruption in tax administration abstract we extend the game theoretic model of graetz reinganum and wilde 1986 to allow for corruption in tax administration in the presence of corruption audit rates are generally higher than in its absence in fact in the presence of corruption it is possible to sustain equilibria in which all returns are audited moreover when some auditors accept bribes it is possible for increases in the fine rate or the tax rate to reduce expected government revenue

board of director gender and corporate tax aggressiveness an empirical analysis this study examines the impact of board of director gender diversity on corporate tax aggressiveness based on a sample of 418 u s firms covering the 2006 2009 period 1672 firm year observations our ordinary least squares regression results show a negative and statistically significant association between female representation on the board and tax aggressiveness after controlling for endogeneity our results are consistent across several measures of tax aggressiveness and additional robustness checks

market reaction to the filing of antitrust suits an aggregate and cross sectional analysis the data were obtained from the february 1982 international financial statistics the ifs code is given in parentheses the exchange rate was end of period exchange rate ae real income was real gdp u k sweden 99 b p and real gnp germany canada u s 99 a r interest rates were a treasury bill rate u k canada u s 60c call money rate germany 60b and government bond yield sweden 61 money was 34 prices were the consumer price index 64 references

tax progressivity income distribution and tax non compliance this article examines the determinants of tax non compliance when we recognise the existence of an imperfectly competitive tax advice industry supplying schemes which help taxpayers reduce their tax liability we apply a traditional industrial organisation framework to model the behaviour of this industry this tells us that an important factor determining the equilibrium price and hence the level of noncompliance is the convexity of the demand schedule we show that in this context this convexity is affected by the distribution of pre tax income the progressivity of the tax schedule and the way in which monitoring and penalties vary with income it is shown that lower pre tax income inequality as well as a less progressive tax code may cause more tax minimisation activities therefore the frequently advocated policy of reducing the highest tax rate may fail as a policy directed at improving tax discipline one way of offsetting the possible harm to tax compliance from a less progressive tax could be an adjustment of the penalty and monitoring functions

tax evasion and capital gains taxation this paper uses time series data to investigate how changes in capital gains tax rates affect taxpayer compliance it finds that a one percent increase in the marginal tax rate reduces voluntary compliance by between one half and one percent these results confirm the findings of previous studies based on individual household data they also suggest that at least one quarter of the observed capital gain realization response to changes in marginal tax rates is due to changes in reporting behavior rather than portfolio behavior this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

corruption as an occupational choice endogenous corruption and tax policy corruption is endemic in many countries and empirical studies have demonstrated how it impacts on macroeconomic indicators theoretical studies have generally assumed an exogenously given proportion of the population are corrupt or that the public sector is fixed in size far fewer explore how corruption emerges endogenously we endogenize corruption as an occupational choice workers choose private or public employment public employees can be honest or corrupt corruption is subject to a social sanction that results in a loss of self esteem those who care little about the social sanction choose to be corrupt when a firm meets a corrupt public employee it pays a bribe to secure a reduction in the tax rate the economy has two self sustaining equilibria with different levels of corruption corruption reduces tax revenue and the tax rate that maximizes revenue an increase in the social sanction reduces corruption but also reduces tax revenues if the economy is in a high corruption equilibrium paying a wage premium to public sector workers can result in all public sector workers being corrupt public sector audits to detect corrupt workers always reduce corruption but can only increase welfare when they are cheap to conduct and the economy is in a low corruption equilibrium

law enforcement and wrongful arrests with endogenously in competent officers economic intuition suggests that enforcement errors incentivize crimes therefore officers must be penalized for committing such errors legal scholars argue that if penalties for errors are severe officers may become timid while policing thereby encouraging crime we evaluate these arguments in a model where officers invest in competence competence increases the officer s ability to identify criminals low sanctions for errors encourages bold policing by officers but may still raise the equilibrium level of crime because it also discourages investments in competence granting immunity to only competent officers qualified immunity reduces both errors and crimes when competence is observable

going to haven corporate social responsibility and tax avoidance this study examines the endogenous relation between corporate social responsibility csr and tax avoidance by focusing on a common strategy of corporate tax avoidance i e establishing entities in offshore tax havens using hand collected data on a sample of u s firms we find that firms csr ratings increase substantially in the two years after they first open tax haven affiliates we provide evidence by using the controlled foreign corporations cfc look through rule enacted by congress in 2006 that facilitates offshore profit shifting we find that firms that are affected by the cfc legislation increase their csr practices in response overall our results are consistent with the risk management theory which argues that firms hedge against the potential negative consequences of aggressive tax avoidance practices through an increase in positive csr activities

privatization of agricultural extension services in the eu towards a lack of adequate knowledge for small scale farms small scale farming involves millions of households in the eu and plays an important role in the rural economy a significant percentage of these farms produce commodities for the market this productive dimension is often overlooked however as is the technical support needed by these farms the privatization of national farm advisory systems nfas has an impact on small scale farming that should be better assessed this paper which looks at the characteristics of intangible services helps demonstrate how the privatization of advisory services may have unexpected adverse effects on small farms the dismantling of coordinating authorities has made these farms less visible as a target client less direct interaction with advisors makes it more difficult to co produce knowledge that is relevant to their needs in addition back office activities such as scientific monitoring building and updating databases and scientific experiments have been restructured in a way which does not support their interests

the profitability of price fixing evidence from stock market reaction to federal indictments the authors estimate the profitability of price fixing by examining the stock price reaction to federal indictments for 127 firms during 1962 1980 they hypothesize that the reaction is composed of expected legal costs lost monopoly profits and or various negative market signal effects the mean abnormal return over the wsj indictment announcement date and the day before is a statistically significant 1 08 this corresponds to a total value loss of 2 18 billion 1982 of which only about 13 can be attributed to various legal costs e g fines and damages the 1 89 billion residual might be in all or part the present value of monopoly profits lost because of conspiracy dissolution they test this and other possible explanations and on balance find support for the lost monopoly profit interpretation copyright 1991 by mit press

consumer reactions to corporate tax strategies effects on corporate reputation and purchasing behavior on the basis of an interdisciplinary approach linking taxation marketing and corporate social responsibility the present research investigates the effects of media reports on aggressive and responsible corporate tax strategies ctss on corporate success with consumers by means of two laboratory experiments n 150 360 we analyze the effects of the ctss on corporate reputation consumer purchase intention and the consumer s willingness to pay our results suggest that aggressive ctss diminish corporate success with consumers whereas responsible ctss enhance it nevertheless consumers are not willing to pay a price premium for products sold by responsible tax planning companies but rather punish aggressive tax planning companies through a slightly lower willingness to pay finally consumers tax morale and their attitude toward tax avoidance are important moderating variables given the growing level of media interest in taxation our findings are crucial for assessing consumer related non tax costs and the benefits of different ctss

corruption tax evasion and social values we provide a theoretical explanation for the vicious circle of political corruption and tax evasion in which countries often fall into we address this issue in the context of a model with two distinct groups of agents citizens and politicians citizens decide the fraction of their income for which they evade taxes politicians decide the fraction of the public budget that they peculate we show that multiple self fulfilling equilibria with different levels of corruption can emerge based on the existence of strategic complementarities indicating that corruption may corrupt furthermore we find that standard deterrence policies cannot eliminate the multiplicity of equilibria instead policies that impose a strong moral cost on tax evaders and corrupt politicians can lead to a unique equilibrium

walking inside the potential tax evader s mind tax morale does matter we conduct an empirical study on the determinants of the psychological costs of tax evasion also known as tax morale as a preliminary step we build a model of tax evasion including non monetary considerations show the relationship between tax compliance and tax morale in the empirical analysis of tax morale we find using a binomial logit model that the justification of tax evasion can be explained by the presence of grievance in absolute terms those who feel that taxes are too high those who feel that public funds are wasted and those who accept underground economic activities and grievances in relative terms the suspected level of others tax evasion the sense of duty and the level of solidarity are also relevant factors but to a lesser extent

relative consumption and tax evasion abstract relative consumption effects or status concerns that feature jealousy in the sense of dupor and liu 2003 boost consumption expenditure if consumption is financed by labour income such status considerations increase labour supply and hence the tax base a higher taxable income in turn can make tax evasion more attractive we show for various specifications of preferences that the tax base effect generally dominates consequently relative consumption effects tend to reduce tax evasion this is true irrespective of whether tax parameters are exogenous guarantee a balanced budget or are set optimally

cross border tax evasion under a unilateral fatca regime abstract cross border tax evasion has emerged in recent years as a central issue in tax enforcement traditionally the legal regime governing cross border tax enforcement was based on information exchange upon request in 2010 the us congress enacted the foreign account tax compliance act fatca which seeks to induce foreign financial institutions ffis to participate in a global regime of automatic information reporting of the income of us residents to the us government this paper presents a simple theoretical model of cross border investment that analyzes the consequences of this unilateral fatca regime the model emphasizes cross border investors heterogeneous intrinsic motivation to comply with tax law as well as the impact of information reporting requirements on the cost of providing financial services in fatca compliant equilibria in which ffis report information to the us government ffis face a higher cost of providing financial services increasing the fees charged to their accountholders consequently tax compliant behavior such as investing via their domestic financial sector becomes more costly for foreign residents under certain conditions a unilateral fatca regime causes increased cross border tax evasion among residents of foreign countries this result is robust to various extensions

analyst coverage and corporate tax aggressiveness abstract we examine the impact of analyst coverage on corporate tax aggressiveness to address endogeneity concerns we perform a difference in differences analysis using a setting which causes exogenous decreases in analyst coverage our tests identify a negative causal effect of analyst coverage on tax aggressiveness suggesting that higher analyst coverage constrains corporate tax aggressiveness further cross sectional variation tests find that this constraining effect on tax aggressiveness is more pronounced in firms with lower investor recognition and firms with more opaque information environments our results are consistent with the notion that higher analyst coverage increases the visibility of aggressive tax planning behavior as well as heightens analysts demand for more transparent information which in turn reduces tax aggressiveness

predictive analytics and the targeting of audits the literature on audit strategies has focused on random audits or on audits conditioned only on income declaration in contrast tax authorities employ the tools of predictive analytics to identify taxpayers for audit with a range of variables used for conditioning the paper explores the compliance and revenue consequences of the use of predictive analytics in an agent based model that draws upon a behavioral approach to tax compliance the taxpayers in the model form subjective beliefs about the probability of audit from social interaction and are guided by a social custom that is developed from meeting other taxpayers the belief and social custom feed into the occupational choice between employment and two forms of self employment it is shown that the use of predictive analytics yields a significant increase in revenue over a random audit strategy

a dynamic portfolio choice model of tax evasion comparative statics of tax rates and its implication for economic growth abstract this paper extends the portfolio choice model of tax evasion from a static to a dynamic setting it is shown that while higher tax rates repress tax evasion in the static model they encourage tax evasion in the dynamic model we explore a novel implication of this result and show that while growth is decreasing in tax rates in the absence of tax evasion it is u shaped in tax rates in the presence of tax evasion

tax evasion and orders of risk aversion abstract the classic allingham and sandmo s journal of public economics 1 1972 323 338 portfolio choice approach to income tax evasion has been increasingly criticised because it requires an excess degree of risk aversion to explain the observed rate of tax compliance in this paper we argue that there may not necessarily be excess risk aversion and that the evidence can be explained by the distinction between orders of risk aversion as defined by segal and spivak journal of economic theory 51 1990 111 125 and considered in regard to the same problem of anomalous excess risk aversion in financial and insurance markets

social esteem versus social stigma the role of anonymity in an income reporting game abstract this paper aims at experimentally testing the role of different non monetary dis incentives on tax compliance participants were subjected to different experimental conditions where the role played by anonymity differed as expected anonymity does play an important role in the decision to pay taxes in addition we found that a negative non monetary incentive increases tax compliance more effectively than a positive non monetary incentive we also found that the effect of these non monetary incentives is mitigated when too much information is made available results show that when evasion is made public tax fraudsters are willing to pay in order to keep their dishonest behaviour undisclosed and to avoid public shame interestingly we found a misalignment on the impact of stigmatization namely that the judgement of an individual s evasion is perceived by the individual more harshly than a judgement made by the said individual regarding evasion carried out by other parties

why do developing countries tax so little the power to tax is taken for granted in a great deal of mainstream public finance in considering limits to taxation traditional research in the field focuses on limits imposed by incentive constraints which are tied to asymmetric information or to politics and political institutions the limits to taxation are rarely tied to the administrative capacity of the state but incentive constraints alone cannot explain the vast differences in the levels of taxation that we see across the world and across time low income countries typically collect taxes of between 10 to 20 percent of gdp while the average for high income countries is more like 40 percent in essence our view on these patterns is similar to that taken by joseph schumpeter 1918 almost a century ago when he noted the fiscal history of a people is above all an essential part of its general history an enormous influence on the fate of nations emanates from the economic bleeding which the needs of the state necessitates and from the use to which the results are put in order to understand taxation economic development and the relationships between them we need to think about the forces that drive the development process poor countries

tax evasion is not a gamble a report on two experiments abstract a tax evasion experiment and an equivalent gambling experiment indicate that contrary to the standard model of evasion tax evasion and gambling are quite different although the standard model provides a good basis for analysis of evasion

tax evasion and social interactions the paper extends the standard tax evasion model by allowing for social interactions in manski s manski c f 1993 identification of endogenous social effects the reflection problem review of economic studies 60 3 531 542 nomenclature our model takes into account endogenous interactions i e social conformity effects exogenous interactions i e fairness effects and correlated effects our model is tested using experimental data participants must decide how much income to report given individual and group tax rates and audit probabilities and given a feedback on the other members reporting behavior myopic and self consistent expectations are considered in the analysis in the latter case the estimation is based on a two limit simultaneous tobit with fixed group effects a unique social equilibrium exists when the model satisfies coherency conditions in line with brock and durlauf brock w a durlauf s n 2001b interactions based models in j heckman and e leamer eds handbook of econometrics 5 elsevier science b v 3297 380 the intrinsic nonlinearity between individual and group responses helps identify the model our results provide evidence of fairness effects but reject social conformity

happiness and tax morale an empirical analysis abstract this paper presents empirical evidence that tax morale taxpayers intrinsic motivation to pay taxes constitutes a new determinant of happiness even after controlling for several demographic and socioeconomic factors using data on italian households for 2004 we assess the strength of tax morale by relying on single items as well as composite multi item indices our main result that fiscal honesty generates a higher hedonic payoff than cheating is in line with harbaugh et al 2007 s neuroeconomic finding further it sheds light on the well known puzzle of compliance that is the fact that many individuals pay taxes even when expected penalty and audit probability are extremely low tax compliance is less puzzling once we show that not only it is materially costly but also provides sizeable non pecuniary benefits that make it rewarding in itself

will destination based taxes be fully exploited when available an application to the u s commodity tax system abstract we develop a tax competition model that allows for the setting of both an origin based and a destination based commodity tax rate in the presence of avoidance and evasion in the presence of evasion jurisdictions will give cross border shoppers tax preferential treatment thus not fully exploiting the potential of destination based taxation moreover the divergence between origin based and destination based taxes is stronger when the incentives for consumers tax arbitrage opportunities increase the united states is one example of many such systems while sales taxes are due at the point of sale use taxes are due on goods purchased out of state we document that when able to set both rates a majority of jurisdictions levy destination based use taxes at a lower rate than origin based sales taxes in response to changes in state level policies that increase tax avoidance opportunities the results of the empirical model broadly confirm our theory

the effect of court ordered hiring quotas on the composition and quality of police arguably the most aggressive armative action program ever implemented in the united states was a series of court ordered racial hiring quotas imposed on municipal police departments my best estimate of the eect of court ordered armative action on workforce composition is a 14

study on labour supply when tax evasion is an option with box cox functional forms and random parameters labour supply when tax evasion is an option is analysed within a discrete choice framework which incorporates random parameters and box cox functional forms using mixed logit models deviates in parameters and in some cases correlation between alternatives in the evasion group are found to be significant the models utilized yield good predictions in terms of labour supply and taxes paid by nonevaders the goodness of fit and quality of prediction is improved by the introduction of correlation between random coefficients

public pressure and corporate tax behavior we use a shock to the public scrutiny of firm subsidiary locations to investigate whether that scrutiny leads to changes in firms disclosure and corporate tax avoidance behavior actionaid international a nonprofit activist group levied public pressure on noncompliant u k firms in the ftse 100 to comply with a rule requiring u k firms to disclose the location of all of their subsidiaries we use this setting to examine whether the public pressure led scrutinized firms to increase their subsidiary disclosure decrease tax avoidance and reduce the use of subsidiaries in tax haven countries compared to other firms in the ftse 100 not affected by the public pressure the evidence suggests that the public scrutiny sufficiently changed the costs and benefits of tax avoidance such that tax expense increased for scrutinized firms the results suggest that public pressure from outside activist groups can exert a significant influence on the behavior of large publicly traded firms our findings extend prior research that has had little success documenting an empirical relation between public scrutiny of tax avoidance and firm behavior

the excess burden of tax evasion an experimental detection concealment contest abstract tax evasion may cause social welfare losses due to the incentives of taxpayers to invest in the concealment and of tax authorities to invest in the detection of tax evasion reducing the investment of both parties at the same time would then lead to a pareto improvement given that concealment and detection costs are hardly measurable in reality we show in a controlled laboratory experiment that the welfare losses from a concealment detection contest depend positively on the prevailing tax rate but not on the penalty which is imposed in case of detected tax evasion hence policy makers who are concerned about socially inefficient concealment and enforcement costs should focus on tax rates rather than penalty rates

optimal redistribution with endogenous social norms in this paper we examine the effect of social norms on redistributive policies where social norms are reflected in the degree of work participation among the different skill classes participation is driven both by the material incentives and heterogeneous preferences for leisure of each skill class and by an endogenous social norm results for optimal redistributive taxation show that when the social norm enters as a benefit or cost for participants participation taxes are generally lower than in its absence multiple participation equilibria can occur and an engineered shift from a low to a high participation equilibrium can be pareto improving in the long run

do ethics matter tax compliance and morality in this article we argue that puzzle of tax compliance can be explained at least in part by recognizing the typically neglected role of ethics in individual behavior that is individuals do not always behave as the selfish rational self interested individuals portrayed in the standard neoclassical paradigm but rather are often motivated by many other factors that have as their main foundation some aspects of ethics we argue that it is not possible to understand fully an individual s compliance decisions without considering in some form these ethical dimensions specifically we argue here that there is much direct and indirect evidence that ethics differ across individuals and that these differences matter in significant ways for their compliance decisions we then put this in the larger context of the inability of the standard neoclassical paradigm to explain compliance of at least some individuals and we suggest several possible avenues by which theory can be expanded to incorporate ethics we conclude by arguing that a full house of compliance strategies is needed to combat tax evasion strategies that include the traditional enforcement paradigm suggested by and consistent with neoclassical theory a less traditional service paradigm that recognizes the important role of a kinder and gentler tax administration in encouraging compliance and importantly a new trust paradigm that is built on the foundation of ethics in which the tax administration must recognize that it can erode the ethics of taxpayers by its own decisions

real effects of accounting rules evidence from multinational firms investment location and profit repatriation decisions we analyze survey responses from nearly 600 tax executives to better understand corporate decisions about real investment location and profit repatriation our evidence indicates that avoiding financial accounting income tax expense is as important as avoiding cash income taxes when corporations decide where to locate operations and whether to repatriate foreign earnings this result is important in light of the recent research about whether financial accounting affects investment and in light of the decades of research on foreign investment that examines the role of cash income taxes but heretofore has not investigated the importance of financial reporting effects our analysis suggests that financial reporting is an important factor to be considered in the policy debates focused on bringing investment to the united states

the use of field experiments to increase tax compliance governments have become increasingly interested in the explosion of research into taxpayer behaviour this article briefly reviews two main theories of tax compliance deterrence and non deterrence before discussing the recent rapid rise of natural field experiments nfes in this area these nfes represent a win win for policy makers and academics since they can test theories while also evaluating the impact of a specific intervention in the real world the evidence from nfes shows that deterrence approaches improve compliance while the case for non deterrence approaches is less conclusive at the moment nfes could be improved by paying more attention to findings from behavioural science that apparently incidental factors such as timing framing and complexity substantially affect whether compliance occurs or not new directions for future studies include network effects tax payments in addition to declarations the behaviour of firms the provision of public goods and the relationship between attitudes and behaviour

a fairness approach to income tax evasion abstract the tax that a taxpayer wishes to evade is determined on the basis of his perception of the fairness of his fiscal treatment with respect to both governmental supply of public goods and the perceived behaviour of other taxpayers the coercive powers of the state and the taxpayer s attitude toward risk determine the extent to which this desired level is undertaken in practice this approach is able to produce implications for the relationship between public expenditure tax rates and tax evasion which are more consistent with empirical evidence than the results of the conventional portfolio choice approach