bond ladders and rolling yield convergence most investment grade bond portfolios have stable durations and can be regarded as duration targeted dt for dt portfolios multiyear returns converge to the starting rolling yield if the yield curve undergoes a sequence of strictly parallel shifts the theoretical convergence horizon is one year less than twice the duration target the laddered portfolios favored by private investors are essentially dt and surprisingly their convergence return coincides with the starting yield of the ladder s top rung bond

risk taking and taxation an alternative perspective abstract the analysis of risk taking and taxation has almost invariably been in a portfolio choice framework this paper presents the alternative perspective of an occupational choice framework where risk taking involves the additional element of discrete choice between safe and risky activities it is shown that the specification of equilibrium must of necessity have a general equilibrium character in this setting the paper develops rules for government intervention in the market equilibrium and analyses the effects of taxation on risk taking

everyone may benefit from subsidising entry to risky occupations this paper shows that in the presence of costly state verification directly or indirectly subsidising entry to risky occupations may benefit everyone the result holds even in the presence of private insurance indeed it may be desirable to prohibit private insurance in favour of subsidies to hazardous activities these findings do not depend on the government having an advantage over the private sector in observing outcomes the explanation is that through its influence on equilibrium price feasible fiscal policy can shift the return distribution so as to create collective insurance more cheaply than is possible through private contracting with its requirement of costly auditing amongst applications is a case for a loss making state bank offering high interest rate loans

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

progressive income taxation and the underground economy abstract with a progressive income tax system decreasing absolute and nondecreasing relative risk aversion are sufficient conditions for either a rise in the tax rate or a revenue neutral increase in progressivity to cause growth in the underground economy

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

a note on the estimation of the equity efficiency trade off for qalys abstract in this note the veil of ignorance approach is tested as a basis for empirically determining the shape of the social welfare function for qalys an experiment is carried out where the participants choose between different societies that differ with respect to per capita qalys and the distribution of qalys the answers are analyzed using logistic regression analysis according to the results the respondents are willing to give up 1 qaly in the group with more qalys to gain 0 45 qalys in the group with fewer qalys but this trade off is independent of the size of the difference in qalys between the groups

estimating tax noncompliance with evidence from unaudited tax returns this article estimates the degree of tax noncompliance using evidence from unaudited tax returns measurements of noncompliance are derived from the relationship between reported charitable contributions and reported income from wages and salary as compared to alternative reported income sources such as self employment farm and other small business income assuming that the source of one s income is unrelated to one s charitable inclinations and that the ratio of true income to taxable income does not vary by income source any difference in the relationship between charitable contributions and the source of income can be attributed to relative underreporting by the individual we find that the implied amount of noncompliance is significant and that it varies by source of income as well as between positive and negative values of each type of income tax evasion creates horizontal inequity and if opportunities for evasion are correlated with income complicates the attempt to achieve vertical equity evasion also imposes economic costs because taxpayers expend resources to facilitate evasion and the tax agency expends resources to contain it the equity and efficiency implications of tax evasion and optimal policy to address it depend on its magnitude and nature which for obvious reasons is difficult to ascertain this article contributes to that effort by developing a new method for estimating the extent and nature of tax noncompliance based on evidence from unaudited tax returns this evidence is derived from the relationship between reported charitable contributions and reported taxable income from various sources such as wages and salaries selfemployment nonfarm small business and farm income and is based on the assumptions that the source of one s income is unrelated to one s charitable inclinations and that the ratio of true income to taxable income does not vary by income source we find that the implied amount of noncompliance on non wageand salary income is substantial and that it varies among these sources of income as well as between positive and negative values of each type of income on average reported positive self employment nonfarm small business and farm income must be multiplied by a factor of 1 54 4 54 and 3 87 respectively in order to obtain true income even those individuals who report zero income for a specific income source but file the schedule for that source are estimated to have true positive income finally those households that report negative schedule income may actually have greater true income than those households that report positive income

an expenditure based estimate of britain s black economy abstract we estimate the size of britain s black economy defined narrowly as unreported taxable income by using income and expenditure data drawn from the 1982 family expenditure survey our working assumptions are that all income groups report expenditure on food correctly employees in employment report income correctly and that the self employed under report their income we estimate food exependiture equations for all groups and then invert them to arrive at the conclusion that on average true self employment income is 1 55 times as much as reported self employment income this implies that the size of the black economy is about 5 5 percent of gdp

theories of justice and their implications for priority setting in health care abstract the paper aims to show how three theories of distributive justice utilitarianism egalitarianism and maximin can provide a clearer understanding of the normative basis of different priority setting regimes in the health service the paper starts with a brief presentation of the theories followed by their prescriptions for distribution as illustrated with their respective preferred points on a utility possibility frontier after this general discussion attention is shifted from utils to health the paper discusses how the recent norwegian guidelines for priority setting can be understood in the light of the theories

equity and equality in health and health care this paper explores four definitions of equity in health care equality of utilization distribution according to need equality of access and equality of health we argue that the definitions of need in the literature are inadequate and propose a new definition we also argue that irrespective of how need and access are defined the four definitions of equity are in general mutually incompatible in contrast to previous authors we suggest that equality of health should be the dominant principle and that equity in health care should therefore entail distributing care in such a way as to get as close as is feasible to an equal distribution of health

long term bond returns under duration targeting although most bond portfolios maintain a relatively stable duration over time and are thus implicitly or explicitly duration targeted the distinctive nature of duration targeting dt is underappreciated the authors theoretical dt model demonstrates that over multi year horizons annualized dt returns converge back to the starting yield regardless of the rate path for example for almost all six year holding periods since 1985 barclays bond index returns have converged to within 1 of the starting yield

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

utilities versus rights to publicly provided goods arguments and evidence from health care rationing grounds of the consequentialist and sometimes approximately utilitarian moral framework on which it is based an alternative methodological approach is suggested and in addition to consequences four normative determinants of health care entitlements are identified rights public opinion social contracts and community values survey evidence is presented which shows support for these alternative frameworks and a rejection of consequentialism the paper suggests that a if not the major challenge facing the designers of rationing guidelines is that of pluralism i e the need to integrate considerations from a set of frameworks

crime and social interactions the high variance of crime rates across time and space is one of the oldest puzzles in the social sciences this variance appears too high to be explained by changes in the exogenous costs and benefits of crime we present a model where social interactions create enough covariance across individuals to explain the high cross city variance of crime rates this model provides an index of social interactions which suggests that the amount of social interactions is highest in petty crimes moderate in more serious crimes and almost negligible in murder and rape

ambiguity about audit probability tax compliance and taxpayer welfare we show that an increase in uncertainty about the probability of being audited ambiguity increases tax compliance for ambiguity averse taxpayers but reduces compliance for ambiguity lovers because experimental evidence reveals considerable heterogeneity with respect to ambiguity preferences we conclude that fostering uncertainty about the probability of being audited may not be an effective policy for increasing taxpayer compliance moreover because the tax authority can neither categorize nor screen taxpayers on the basis of their preferences for ambiguity it is not likely to be either a useful or a desirable instrument for increasing taxpayer welfare jel h26 d81

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

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

tax evasion and self insurance abstract this paper examines the effect of an increase in the tax rates on tax evasion in a model where taxpayers self insure against possible penalties the analysis shows that the effect depends on the marginal productivity of self insurance if the marginal productivity is not too small an increase in the tax rates leads to greater tax evasion and less tax compliance this result stands in contrast with the theoretical result in the literature but accords well with empirical findings

volatility in tax exempt bonds a theoretical model 1981 volatility in tax exempt bonds a theoretical model financial analysts journal vol 37 no 6 pp 31 52

shadow economies size causes and consequences using various methods the size of the shadow economy in 76 developing transition and oecd countries is estimated average size varies from 12 percent of gdp for oecd countries to 23 percent for transition countries and 39 percent for developing countries increasing taxation and social security contributions combined with rising state regulations are driving forces for the increase of the shadow economy especially in oecd countries according to some findings corruption has a positive impact on the size of the shadow economy and a growing shadow economy has a negative effect on official gdp growth

axioms for health care resource allocation this paper examines principles of health care resource allocation based on axioms for individual preferences and distributive justice we establish axioms for representing individual preferences by quality adjusted life years qalys as well as axioms for existence of a social welfare function depending only on qalys a symmetric cobb douglas social welfare function is characterized by an axiom stating that social welfare is anonymous with respect to the distribution of individual life years replacing this axiom with an axiom of non age dependence we obtain a characterization of a utilitarian social welfare function with certain weights further we give axioms for a social welfare function being a weighted sum of power transformations of individual qalys

a general characterization of optimal income tax enforcement this paper develops a general approach to characterizing optimal income tax and enforcement schemes our analysis clarifies the nature of the interplay between tax rates audit probabilities and penalties for misreporting in particular it is shown that for a variety of objective functions for the principal the optimal tax schedule is in general concave at least weakly and monotonic the marginal tax rates determine the audit probabilities and less harsh penalties lead to higher enforcement costs our results imply that there exists a tradeoff between equity and efficiency considerations in the enforcement context which is similar to that in the moral hazard context for tax policy it is well accepted by now that informational asymmetries generate important constraints on the formulation of economic policy an early and classic example is given by mirrlees 1971 who considers the problem of optimal income taxation when individuals differ in their ability to transform effort into income it is assumed that ability and effort of an individual cannot be observed at any cost whereas income which is the product of these two unobservables is perfectly and costlessly observable taxes can thus depend only on final income under these informational conditions the equity efficiency tradeoffs that constrain the choice of tax policy arise only because of the presence of moral hazard associated with taxation of income if there were no moral hazard i e individual efforts and therefore incomes were exogenous the problem of optimal income taxation would be a trivial one since by assumption individual incomes are perfectly and costlessly observable in much of the recent literature on optimal income taxation in the presence of costly enforcement reinganum and wilde 1985 border and sobel 1987 and others on the other hand individual incomes are treated as exogenous i e there is no moral hazard however informational constraints arise from another important consideration namely an individual s income cannot be directly observed it can only be verified through a costly

tax evasion with labour income allingham and sandmo s 1972 classic paper on tax evasion set out a simple framework for looking at the effects of regular tax parameters and of the structure of penalties on the amount of tax dodging carried out by a tax evader subsequent papers have enriched the basic model of individual behaviour and have attempted to adduce some empirical evidence 2 but with few exceptions the essential nature of the assumed underlying problem has remained the same how much income shall i reveal to the authorities in the face of the known penalties and the known possibility of getting caught whilst this approach is useful for some types of tax evasion by individuals it is clearly inappropriate for others such as the phenomenon of working off the books rather than concealing a portion of a uniform lump of income that is undistinguished as to its source the person cheats the government by taking one or more different jobs either in addition to or as a replacement for his regular employment the income from which is administratively difficult to tax this paper examines the implications of the possible diversity of form of the tax evasion problem for the analysis of the fundamental questions which allingham and sandmo addressed the effect of government instruments on the incentives to participate in legal and illegal work activities to do this we must concentrate on one major development of the original model namely that where income is endogenous in effect we construct a particular version of the analysis of labour supply under uncertainty within which to

a theory of anticipated utility abstract a new theory of cardinal utility with an associated set of axioms is presented it is a generalization of the von neumann morgenstern expected utility theory which permits the analysis of phenomena associated with the distortion of subjective probability

income tax compliance in a principal agent framework previous analyses have modeled income tax evasion as a portfolio problem deriving the optimal consumption of the risky asset unreported income under the assumption of a fixed probability of detection the purpose of this paper is to examine some of these issues in tax compliance starting from a different set of assumptions in particular we compare alternative audit policies to the standard random audit policy we focus on an audit cutoff policy in which an agent triggers an audit if his or her reported income is too low and is not audited if reported income is sufficiently high this paper establishes two major results first random audit rules are weakly dominated by audit cutoff rules it can be shown given lump sum taxes and fines that these audit cutoff rules are the least cost policies which induce truthful reporting of income second the dominance of audit cutoff rules over random audit rules holds for lump sum as well as proportional taxation in fact the equilibrium consequences of the two are equivalent

priority setting in public and private health care a guide through the ideological jungle abstract priority setting means deciding who is to get what at whose expense in the context of health care the what in that statement refers to different sorts of health care and the who to different sorts of people the whose expense is not so straightforward it appears to refer to who will pay the bill and in a public health care system this might seem to be the government though behind the government stands the taxpayer and that means all of us even in a private health care system it is rarely the patient who meets the bill directly for some or all of it will be met by an insurer and the costs of any particular treatment episode will be spread over many premium payers but in the context of an economic rather than a financial analysis the phrase at whose expense has to be interpreted in a different way based on the notion of opportunity cost rather than on the notion of expenditure when so reinterpreted it means who is to go without health care in order that others shall have it giving priority to one group of people means taking it away from another group though for obvious reasons politicians tend not todwell on this implication leaving us to infer from what is not said who the low priority groups are in any honest and open discussion of these issues however that implication must be faced squarely and we must not shrink from identifying who implicitly the low priority people are in any particular system of health care

taxation and labour supply with risky activities consider the following three phenomena a in recent years dramatic shifts in the types of contract between london cabbies and the taxi owners have been observed b if one tries to hire a housepainter in the uk one is often quoted two rates one for official work during regular hours and for unofficial weekend and evening work c in two unrelated discussions with economics professors about the textbook model of taxation and labour supply each revealed to me that marginal hours released from his regular employment were spent not in the form of leisure but in participating in stock market speculation

qalys and the equity efficiency trade off as the volume of research on quality adjusted life years qalys has increased concern has begun to be expressed about the equity aspects of resource allocation decisions based on the results of this research this paper suggests that a common theme running through the criticisms of the qaly approach is a concern about inequality it also suggests that the method for incorporating distributional concerns which is currently being pursued by advocates of the qaly approach will only ever capture concerns other than a concern about inequality the paper suggests a method for incorporating both sets of concerns into resource allocation decisions

cheating ourselves the economics of tax evasion no government can announce a tax system and then rely on taxpayers sense of duty to remit what is owed some dutiful people will undoubtedly pay what they owe but many others will not over time the ranks of the dutiful will shrink as they see how they are being taken advantage of by the others thus paying taxes must be made a legal responsibility of citizens with penalties attendant on noncompliance but even in the face of those penalties substantial tax evasion exists and always has the history of taxation is replete with episodes of evasion often notable for their inventiveness during the third century many wealthy romans buried their jewelry or stocks of gold coin to evade the luxury tax and homeowners in eighteenth century england temporarily bricked up their fireplaces to escape notice of the hearth tax collector webber and wildavsky 1986 p 141 this essay reviews what is known about the magnitude nature and determinants of tax evasion with an emphasis on the u s income tax alm 1999 andreoni erard and feinstein 1998 and slemrod and yitzhaki 2002 offer more comprehensive recent reviews of the literature it then places this information into a conceptual and policy context

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

the economics of taxpayer compliance there is now a great deal of evidence suggesting that tax evasion is fairly widespread throughout european and north american economies estimates of the so called black economy indicate that perhaps 10 per cent of economic activity in these countries has been driven underground in the attempt to evade payment of tax for a detailed survey see pyle 1989 chs 2 4

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

duration targeting and the management of multiperiod returns modern portfolio management increasingly includes the use of targeted duration strategies as a means of achieving a desired balance between risk and return in such strategies a constant duration is maintained through periodic rebalancing one of the most important characteristics of duration targeting strategies is the focusing of the return distribution on a minimum variance point this point occurs when the duration is equal to about one half the investment horizon it is consequently possible to achieve partial immunization of a bond portfolio by simply maintaining its duration at one half the length of the investment horizon many performance benchmarks including the salomon brothers big index exhibit an almost constant duration it follows that by tracking a bond index one can obtain many of the results of a duration targeting strategy

dalys efficiency versus equity abstract the disability adjusted life year daly is a newly developed indicator of ill health which provided the technical foundation for the world bank s 1993 world development report investing in health in this paper we expose some of the value choices embodied in the daly those relating to disability weights age weighting and discounting we identify the equity consequences of using the efficiency criterion of aggregate daly minimization as a tool for healthsector planning

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

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

the integration of claims to health care a programming approach the paper contributes to the use of social choice and welfare theory in health economics by developing and applying the integration of claims framework to health care rationing related to sen s critique of neo classical welfare economics the integration of claims framework recognises three primitive sources of claim consequences deontology and procedures a taxonomy is presented with the aid of which it is shown that social welfare functions reflecting these claims individually or together can be specified some of the resulting social choice rules can be regarded as generalisations of health maximisation and all have normative justifications though the justifications may not be universally acceptable the paper shows how non linear programming can be used to operationalise such choice rules and illustrates their differential impacts on the optimal provision of health care following discussion of relations to the capabilities framework and the context in which rationing occurs the paper concludes that the integration of claims provides a viable framework for modelling health care rationing that is technically rigorous general and tractable as well as being consistent with relevant moral considerations and citizen preferences

tax evasion and occupational choice this paper is concerned with the combined effect of tax compliance and tax audit policy on the occupational choice of individuals and on public policy objectives such as tax revenue total production and social welfare individuals are assumed to have a choice between riskless work and a risky entrepreneurial occupation they are only differentiated according to their attitudes towards risk more risk averse individuals go into the safe occupation and less risk averse people become entrepreneurs tax evasion is only accessible to the latter and therefore its control tends to discourage risk taking whether control of tax evasion is desirable for the economy as a whole depends on the objective function of the government it is shown that tax audit policy has conflicting effects on tax revenue per capita income and social welfare these conflicts are illustrated through a numerical example in this paper the emphasis is placed on the clarity and the simplicity of the presentation so as to argue that even though the tax schedule can hardly be differentiated across individuals tax evasion and its control can be used by policymakers to introduce variability in the individual s tax treatment