the demand for assets through a low interest rate environment asset demand is important in many areas of economics to investigate this we estimate a globally flexible dynamic fourier asset demand specification and calculate morishima elasticities of substit

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

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

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

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

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

sweep programs and optimal monetary aggregation abstract this paper examines the admissibility of monetary aggregate groupings for the us over 1993 2001 based upon weak separability we investigate the impact of retail and commercial demand deposit sweep programs on the separability of monetary asset groupings weak separability is tested using the swofford whitney and fleissig whitney tests we use varian s measurement error adjustment procedure to eliminate violations of the generalized axiom of revealed preference garp when funds from both retail and commercial demand deposit sweep programs are placed within checkable deposits all groupings narrow and broad pass garp and weak separability for groupings based on conventional money measures tests tend to favor broad aggregates

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

risky monetary aggregates for the uk and us abstract we extend the scope of monetary aggregation beyond capital certain assets that make up central bank data sets and identify groups of assets that form monetary aggregates composed of both capital certain and risky capital uncertain assets we construct monetary aggregates for the us and uk using a superlative index and relax a key assumption of the consumption capital asset pricing model ccapm a one year planning horizon by using forecasted returns on risky assets our new risky monetary aggregates perform well in var tests we recommended exploring risky assets as providers of liquidity services in future research on this topic

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

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

non parametric tests of consumer behaviour the neoclassical model of consumer behaviour postulates that a consumer s choice behaviour can be described as deriving from utility maximization subject to a budget constraint one is then naturally led to ask what this model implies about observed behaviour this question has been addressed from two quite distinct approaches the first approach originating in the work of slutsky 1915 and antonelli 1886 derives necessary and sufficient conditions involving the derivatives of the demand functions the second approach originating in the work of samuelson 1938 1947 1948 derives algebraic conditions on the demand functions implied by maximizing behaviour

mixed integer programming revealed preference tests of utility maximization and weak separability of consumption leisure and money swofford and whitney 1987 1988 1994 investigated the validity of two key assumptions underlying representative agent models of macroeconomics these assumptions are utility maximization and weak separability using mixed integer programming we check revealed preference conditions for these assumptions we find that m1 money defined by friedman and schwartz 1963 and a broad aggregate are weakly separable we find that consumption goods and leisure and nondurables and services are weakly separable we find that m2 m3 and mzm are not weakly separable finally we find three categories of consumption durables nondurables and services do not form an aggregate

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

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

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

divisia monetary aggregates the great ratios and classical money demand functions king et al 1991 evaluate the empirical relevance of a class of real business cycle models with permanent productivity shocks by analyzing the stochastic trend properties of postwar u s macroeconomic data they find a common stochastic trend in a three variable system that includes output consumption and investment but the explanatory power of the common trend drops significantly when they add money balances and the nominal interest rate in this paper we revisit the cointegration tests in the spirit of king et al using improved monetary aggregates whose construction has been stimulated by the barnett critique we show that previous rejections of the balanced growth hypothesis and classical money demand functions can be attributed to mismeasurement of the monetary aggregates

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

the perils of unearned foreign income aid remittances and government survival given their political incentives governments in more autocratic polities can strategically channel unearned government and household income in the form of foreign aid and remittances to finance patronage which extends their tenure in political office i substantiate this claim with duration models of government turnover for a sample of 97 countries between 1975 and 2004 unearned foreign income received in more autocratic countries reduces the likelihood of government turnover regime collapse and outbreaks of major political discontent to allay potential concerns with endogeneity i harness a natural experiment of oil price driven aid and remittance flows to poor non oil producing muslim autocracies the instrumental variables results confirm the baseline finding that authoritarian governments can harness unearned foreign income to prolong their rule finally i provide evidence of the underlying causal mechanisms that governments in autocracies use aid and remittances inflows to reduce their expenditures on welfare goods to fund patronage

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

ground truthing chinese development finance in africa field evidence from south africa and uganda abstracta new methodology tracking underreported financial flows tuff leverages open source information on development finance by non transparent non western donors if such open source methods prove to be valid and reliable they can enhance our understanding of the causes and consequences of development finance from non transparent donors including but not limited to china but open source methods face charges of inaccuracy in this study we create and field test a replicable ground truthing methodology to verify update and improve open source data with in person interviews and site visits in uganda and south africa ground truthing generally reveals close agreement between open source data and answers to protocol questions from informants with official roles in the chinese funded projects our findings suggest that open source data collection while limited in knowable ways can provide a stronger empirical foundation for research on development finance

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

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

nonparametric tests of utility maximization and weak separability for consumption leisure and money some of the most fundamental assumptions of economics are utility maximization and weak separability of the arguments in the represen tative consumer s utility function this paper contains results from nonparametric tests of these assumptions about consumer behavior the authors find that quarterly per capita data on consumption goods le isure and monetary assets are consistent with utility maximization further consumption goods and leisure meet necessary and sufficient conditions for weak separability additionally one grouping of relat ively liquid monetary assets meets the necessary conditions for weak separability they also test and find no evidence of homothetic prefe rences copyright 1987 by mit press

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

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

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

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

more dollars than sense refining our knowledge of development finance using aiddata summary in this introductory essay to the special issue we introduce a new dataset of foreign assistance aiddata that covers more bilateral and multilateral donors and more types of aid than existing datasets while also improving project level information about the purposes and activities funded by aid we utilize that data to provide a brief overview of important trends in foreign aid contributors to this special issue draw on aiddata as well as other sources to analyze aid transparency new donors not previously described or analyzed aid allocation and aid effectiveness our recurring theme in this introductory essay is that aiddata and these initial academic projects refine rather than revolutionize our understanding of aid the database has added significant numbers of new projects dollar amounts donors and details about those projects though there is much more yet to add we worry that aid debates have been driven by too little information and that many claims are based on limited or very poor evidence rectifying these problems will not be instantaneous refining knowledge takes a lot of time and hard work the common feature of the papers in this special issue is their careful attention to nuance and detail in spite of what some recent authors have claimed aid is neither a simple solution nor a sufficient cause of most problems in developing countries its motivations distribution and effects are complex and shifting capturing this complexity requires detailed data careful thought and sophisticated methods that allow scholars to make conditional causal and descriptive inferences 2011 elsevier ltd all rights reserved

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