resolving new keynesian anomalies with wealth in the utility function at the zero lower bound the new keynesian model predicts that output and inflation collapse to implausibly low levels and that government spending and forward guidance have implausibly large effects to resolve these anomalies we introduce wealth into the utility function the justification is that wealth is a marker of social status and people value status since people partly save to accrue social status the euler equation is modified as a result when the marginal utility of wealth is sufficiently large the dynamical system representing the zero lower bound equilibrium transforms from a saddle to a source which resolves all the anomalies

the learning path of the hidden economy the tax burden and tax evasion in new zealand this paper considers the learning curve relationship between the aggregate tax rate and the relative size of the hidden economy in new zealand some simple non linear models are estimated so that the effects of changes in the effective tax rate on the underground economy can be simulated this study finds that about half of the hidden activity in new zealand is a learned response to changing opportunities and constraints in fiscal policy but this amount varies over the business cycle simulating a zero tax rate permits us to discover the natural rate of underground and criminal activity some partial lessons are drawn for taxation policy in that country

redistributional aspects of tax evasion most empirical studies of income distribution use official tax data based on reported income in the presence of tax evasion or a large irregular economy such data give an incorrect picture of the actual income distribution in this paper a model of tax evasion originally due to allingham and sandmo 1972 is developed to analyze the relation between the actual and the officially reported income distribution it is shown that within the framework of this model the distribution of total income which also takes income from the hidden sector into account is generally more uneven than the distribution of officially reported disposable income it is also concluded that in the presence of tax evasion government policy aimed at reducing the degree of inequality can sometimes be counterproductive policy measures which seem egalitarian in the sense that they make the distribution of officially reported disposable income more even might very well make total income less evenly distributed

an experimental examination of labor supply and work intensities estimated negative substitution effects on work hours question the empirical validity of the classical labor supply model estimates are reconciled by allowing a dual choice of hours and effort for piecerate workers in such a model these negative substitution effects result from substituting on and off the job leisure we test our model using controlled experimentation on human subjects these experiments while not naturally occurring environments represent real economic choices and can generate data unavailable elsewhere e g effort data the results support our model and they have implications both for labor management and for empirical research focusing only on the hours choice the classical static model of the labor leisure choice offers positive compensated wage effects on hours of work as its main testable implication previous attempts to test this hypothesis with field data have cast doubt on the empirical validity of the static labor supply model due to the frequency of negative estimated compensated wage elasticities a limitation of the model is that it views the choice of hours of work as the only

the effect of taxes on labor supply in the underground economy this paper uses micro data from a randomized survey carried out in the metropolitan area of quebec city canada to analyze the decision to evade taxes and work in the underground economy the results indicate that taxes distort labor market activities away from the regular sector to the underground sector but the distortion is small for the average worker the distortion is large however for particular groups of the population such as welfare claimants copyright 1994 by american economic association

attitude behavior consistency in tax compliance a cross national comparison abstract are individuals attitudes about paying taxes consistent with their behavior a direct link between attitudes tax morale and behavior tax compliance has long been assumed despite an extensive social scientific literature attesting to the generally weak congruence between the two this study builds on an emerging body of work questioning the link between tax morale and compliance it innovates with a cross national experimental research design whose results indicate that populations with high levels of tax morale exhibit higher evasion rates than those with low levels of tax morale thus the study finds that individual self reported tax morale cannot predict actual evasion choices methodologically the paper contributes the first results of a laboratory experiment on taxation in denmark comparing them to laboratory findings from italy while previous research indicates that these two countries lie at opposite extremes in tax compliance and morale our findings run contrary to culturalist explanations our results show that danes are more likely to evade tax than italians and that individuals attitudes toward tax do not significantly predict their actual evasion choices finally we show that discrepancies in tax behavior between italian and danish subjects are affected by gender and risk aversion

e ztax tax salience and tax rates this paper examines whether the salience of a tax system affects equilibrium tax rates i analyze how tolls change after toll facilities adopt electronic toll collection etc drivers are substantially less aware of tolls paid electronically i estimate that in steady state tolls are 20 to 40 percent higher than they would have been without etc consistent with a salience based explanation for this toll increase i find that under etc driving becomes less elastic with respect to the toll and toll setting becomes less sensitive to the electoral calendar alternative explanations appear unlikely to be able to explain the findings

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

efficient black markets abstract this paper investigates analytically the welfare effects of black market activities that firms undertake to evade taxes the desirability of a black market is linked to the attributes of the goods supplied by black market firms the analysis identifies cases where a black market reduces increases the distortionary impact of taxation on the allocation of resources across the goods that the government is attempting to tax leading to a welfare gain loss

relative wealth status seeking and catching up abstract according to our studies if relative wealth appears in the reduced form utility function for example because of status seeking then the poor will catch up with the rich if the elasticity of marginal utility of relative wealth is greater than the elasticity of marginal utility of consumption we give sufficient conditions for the final distribution of wealth to be independent of the initial distribution and conditions for saddlepoint stability in a two class model

flexing muscle corporate political expenditures as signals to the bureaucracy when corporations and their employees spend money in the political arena to what extent are they purchasing special treatment complaints about the deleterious effects of corporate money in politics are ubiquitous in american political discourse however in order to pinpoint the place of these expenditures in american democracy and to appreciate fully the consequences of various reform proposals itiscriticaltoidentifytheprecisemechanism through which any preferential treatment might occur in this spirit scholars have suggested that corporations make political expenditures because they hope to influence government behavior through either explicit quid pro quos with legislators for constituency service or favorable votes baron 1989 grossman and helpman 1994 2001 improved access to legislators hall and wayman 1990 langbein 1986 or enhancement of the electoral prospects of sympathetic incumbents pooleandromer1985 empiricalevidenceverifying a definitive relationship between expenditures and specific policy change unfortunately has proven elusive in a recent review essay ansolabehere de figueiredo and snyder 2003 116 conclude contributions explain a miniscule fraction of the variation in voting behavior in the u s congress they suggest thatcontributionsarebetterthoughtofasconsumption goods that fulfill a desire to participate in politics than as investment in a political marketplace

substitution between unemployment insurance and workers compensation abstract this paper extends the literature on post injury duration of absence from work by developing a model that incorporates substitution between unemployment insurance benefits and workers compensation a theoretical analysis is presented in which the worker maximizes expected utility over four possible states of nature the model is tested empirically using pooled cross section and time series data at the two digit industry level the main findings support the predictions of the model an increase in workers compensation benefits increases the average duration of accidents with an elasticity of 0 9 1 4 while an increase in unemployment insurance payments reduces the average duration of accidents with an elasticity of 0 5 0 7

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

tax aversion in labor supply abstract in a real effort laboratory experiment labor supply decreases more with the introduction of a tax than with a financially equivalent drop in wages this tax aversion is large in magnitude when we decompose the productivity decrease that arises from taxation we estimate that 40 is due to the lower net wage and the remaining 60 to tax aversion this tax aversion affects labor supply more on the extensive margin working less than on the intensive margin being less productive while working the aversion is equally strong whether tax revenue goes to the u s government or back to the experimenter a laboratory tax we discuss the implications of our results for the relationship between labor supply and taxation

corporate campaign contributions repeat giving and the rewards to legislator reputation abstract are politicians who follow a strategy of reputational development rewarded with high levels of corporate campaign contributions reputational clarity could help to reduce uncertainty about a candidate and lead to greater campaign contributions from favored interests alternatively such clarity could alienate those who disagree and prevent the politician from obtaining contributions from groups on both sides of an issue we outline an approach that considers conditions under which a politician would or would not prefer reputational development and policy stance clarity and consistency in the context of repeat dealing with special interests our proxy for reputational development is the percentage of repeat givers to a legislator using data on corporate political action committee pac contributions to members of the u s house during the seven electoral cycles from 1983 84 to 1995 96 we explore a variety of alternative hypotheses and find that greater reputational development is rewarded with g

keeping up with the ageing joneses in this paper we consider the implications of relative consumption externalities in the blanchard yaari overlapping generations framework unlike most of the macroeconomic literature that studies this question the differences between agents and thus in their relative position persist in equilibrium we show in our fixed employment model that consumption externalities lower consumption and the capital stock in long run equilibrium a result in sharp contrast to the recent findings of liu and turnovsky 2005 in addition we solve for the intertemporal path of the economy to investigate its response to demographic shocks specifically to permanent changes in the birth and death rates

poverty trap and the hidden labor market abstract using general equilibrium framework this study investigates the determination of the wage rate the number of workers their hours worked and comparative static effects of policy parameters in legal and hidden labor markets

uncertainty welfare cost and the adaptability of u s corporate taxes alternative corporate tax systems differ in their ability to adapt to changes in the rate of inflation in the absence of complete indexing of depreciation allowances policymakers may use a particular expected inflation rate to set accelerated depreciation allowances in a way that minimizes the welfare loss from the misallocation of capital this welfare loss is a nonlinear function of the assumed inflation rate however so the welfare loss at the expected inflation rate may be quite different from the expected welfare loss we compute these two welfare concepts for each of three alternative corporate tax schemes in the u s and for two different relationships between inflation and interest rates one important finding is that the auerbach jorgenson first year recovery plan is not equivalent to indexing as is often claimed if uncertainty about inflation implies uncertainty about the real after tax discount rate

are income and consumption taxes ever really equivalent evidence from a real effort experiment with real goods abstract the public finance literature demonstrates the equivalence between consumption and labor income wage taxes we introduce an experimental paradigm in which individuals make real labor leisure choices and spend their earned income on real goods we use this paradigm to test whether a labor income tax and an equivalent consumption tax lead to identical labor leisure allocations despite controlling for subjects work ability and inherent labor leisure preferences and disallowing saving subjects reduce their labor supply significantly more in response to an income tax than to an equivalent consumption tax we discuss the economic implications of a policy shift to a consumption tax

progressive taxes and the labour market is the trade off between equality and efficiency inevitable does an income tax harm economic efficiency more the more progressive it is public economics provides a strong case for a definite yes but at least three forces may pull in the other direction first low wage workers may on average have more elastic labour supply schedules than high wage workers in which case progressive taxes contribute to a more efficient allocation of the total tax burden second in non competitive labour markets progressive taxes may encourage wage moderation and hence reduce the equilibrium level of unemployment and third if wage setters have egalitarian objectives progressive taxes may reduce the need for redistribution in pre tax wages and hence increase the demand for low skilled workers this paper surveys the theoretical as well as the empirical literature about labour supply taxes and wage setting we conclude that in a second best world the trade off between equality and efficiency is not always inevitable copyright 2002 by blackwell publishers ltd

tax evasion and public expenditures on tax revenue services in an endogenous growth model abstract this paper analyzes the relationship between tax evasion and the two main policy instruments affecting tax compliance namely the announced tax rate and the share of tax revenues allocated to tax monitoring mechanisms for doing so we adopt a simple one sector endogenous growth model modified under tax evasion following the roubini and sala i martin 1995 analysis on income taxes and tax compliance our model confirms barro s 1990 theoretical finding stating that the optimal tax rate is equal to the elasticity of public capital however introducing a welfare function where governments care also about the degree of fiscal corruption in the economy the effective tax rate is lower than the output elasticity of public capital in line with futagami et al 1993 and turnovsky 1997 theoretical results finally our model is calibrated using data on tax evasion from 35 oecd and 110 non oecd countries for 2011 simulation results suggest that both tax evasion and output growth are decreasing with the share of tax revenues allocated to monitoring expenses while government s utility maximization imply an announced tax rate lower from the elasticity of public capital for both groups of countries

tax evasion and labor markets abstract concern with revenue losses inequities and inefficiency that may result from tax evasion has produced a number of formal analyses of taxpayer dishonesty most of this work has concentrated on the behavior of individual evaders and has ignored the interaction between evasion and labor market equilibrium to remedy this our analysis uses a model with two labor markets which differ in the potential for evasion to examine how changes in various tax parameters affect evasion and labor market equilibrium we also simulate the effect of switching from a proportional to a progressive tax system in order to evaluate the well known claim that progressivity encourages evasion

the optimal elasticity of taxable income abstract the strength of the behavioral response to a tax rate change depends on the environment individuals operate in and may be manipulated by instruments controlled by the government we first derive a measure of the social benefit to affecting this elasticity the paper then examines this effect in the solution to the optimal income taxation problem when such an instrument is available first in a general model and then in an example when the government chooses the income tax base

jealousy and underconsumption in a one sector model with wealth preference abstract the present paper examines the effects of consumption externalities on economic performance in a one sector model with wealth preference the presence of the wealth preference generates a wealth effect in consumption growth which plays a crucial role for consumption externalities to have impacts on the economy our main findings are i regardless of the assumption of inelastic labor supply the distortionary effect of consumption externalities stays in the long run ii the income tax as well as the consumption tax can modify the efficiency and iii the numerical simulations supplement theoretical findings

the quest for robust counterfeit and piracy figures custom agencies as statistical decision makers and recent evidence based on german imports based on unique custom seizure data we extrapolate robust figures on the amount of counterfeit and piracy in german imports we therefore outline a simple model which explores estimation biases in counterfeit statistics provided by utility maximising custom agencies our empirical strategy sets out to i provide evidence on bias and ii guided by theory identify an unbiased subsample of the data upper bound population estimates counterfeit shares for 2010 11 suggest that around 17 per cent of all german imports are counterfeit in addition we highlight differences in counterfeit trade by commodity and distribution channel and conclude with policy advice

taxation and entrepreneurship in a welfare state does tax policy affect the rate of self employment in a modern welfare state this question is analyzed empirically based on swedish data for the entire postwar period available tax data indicate that payroll taxes have had a negative influence on the unincorporated rate of self employment though the effect is modest no effects from regular labor income taxation or capital gains taxation are found the paper improves upon earlier studies in that it tries to separate the effects of different taxes and uses cointegration techniques a further extension is that it studies a scandinavian high tax welfare state earlier time series studies analyzing self employment and taxation have with few exceptions been based on data from countries with relatively low tax levels and less comprehensive welfare systems notably the usa and the uk

identifying the elasticity of taxable income we use matched panels from the current population survey along with a grouping instrumental variables estimator to provide new estimates of the elasticity of taxable income our identification strategy exploits the fact that federal and state tax reforms over the past three decades have differentially affected cohorts across states and over time we find that the elasticity is in the range of 0 4 0 55 the implication of our new estimates for tax policy is that the revenue maximising tax rate is nearly 30 percentage points lower than that obtained when we use the typical identification strategy in the literature

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

wealth seeking reconsidered abstract if individuals are interested in their relative wealth position they engage in contests for wealth this leads to a steady state with overaccumulation in a simple growth model it is shown that if some individuals are engaged in wealth seeking activity but others are not the latter might benefit however wealth seeking is not welfare enhancing under usual assumptions concerning production technology the steady state equilibrium is characterized by a marginal productivity of capital that is below the steady state rate of time preference and by emergence of a class structure

distributional implications of joint tax evasion both buyers and sellers of goods and services may benefit from letting their economic transactions go unrecorded for tax purposes the supplier reduces his tax burden by underreporting income and sales whereas the consumer may gain from buying a non taxed lower priced product the distributional implications of such joint tax evasion depend on the amounts evaded on where the evaders on both sides of the market are found in the income distribution and on how the financial gain is split our empirical investigations show that the tax evasion controlled estimate of income inequality in norway exhibits more income dispersion than official estimates

withholding and non withheld tax evasion abstract most of the literature on tax evasion and labor supply ignores the fact that the major part of a wage earner s tax liability is usually deducted at source by withholding regulations however while eliminating a single job holder s option of evading taxes through underreporting a withholding system might give rise to evasion of non withheld taxes through non filing of individual returns as well as induce employers to remit to the government less than the amounts withheld this paper investigates the employer and employee tax fraud activity under a withholding system and the system s effect on the amount of tax escaping the tax collector

using differences in knowledge across neighborhoods to uncover the impacts of the eitc on earnings we develop a new method of estimating the impacts of tax policies that uses areas with little knowledge about the policy s marginal incentives as counterfactuals for behavior in the absence of the policy we apply this method to characterize the impacts of the earned income tax credit eitc on earnings using administrative tax records covering all eitc eligible lers from 19962009 we begin by developing a proxy for local knowledge about the eitc schedule the degree of sharp bunching at the exact income level that maximizes eitc refunds by individuals who report self employment income the degree of self employed sharp bunching varies signi cantly

tax evasion and the size of the underground economy abstract the theoretical literature on the relationship between the tax system and the underground economy is extended using a model similar to the one examined by watson journal of public economics 1985 27 231 246 in which tax evasion is possible in one sector of the economy but is impossible in the other we prove that a rise in the tax rate increases decreases the number of agents in the sector in which tax evasion is possible if preferences exhibit increasing decreasing relative risk aversion we also use our model to investigate the relationship between the tax rate and the total amount of tax evaded

labor supply and taxes a survey i survey the male and female labor supply literatures focusing on implications for effects of wages and taxes for males i describe and contrast results from three basic types of model static models especially those that account for nonlinear taxes life cycle models with savings and life cycle models with both savings and human capital for women more important distinctions are whether models include fixed costs of work and whether they treat demographics like fertility and marriage and human capital as exogenous or endogenous the literature is characterized by considerable controversy over the responsiveness of labor supply to changes in wages and taxes at least for males it is fair to say that most economists believe labor supply elasticities are small but a sizeable minority of studies that i examine obtain large values hence there is no clear consensus on this point in fact a simple average of hicks elasticities across all the studies i examine is 0 30 several simulation studies have shown that such a value is large enough to generate large welfare costs of income taxation for males i conclude that two factors drive many of the differences in results across studies one factor is use of direct vs ratio wage measures with studies that use the former tending to find larger elasticties another factor is the failure of most studies to account for human capital returns to work experience i argue that this may lead to downward bias in elasticity estimates in a model that includes human capital i show how even modest elasticities as conventionally measured can be consistent with large welfare costs of taxation

income tax evasion an intersectoral analysis abstract this paper develops an intersectoral model of income tax evasion with general equilibrium effects key elements of the model are imperfectly substitutable outputs from the compliant and evading sectors and workers with heterogeneous evasion costs the model allows for biased public expenditures a wide range of behavioural responses and both legitimate and criminal activities evading tax as well as tax avoidance activities qualitative and quantitative assessments are undertaken for the effects of tax rate changes on evasion activity relative output prices and real tax revenues this approach offers useful findings for taxation policy and is amenable to further analytical extensions

optimal auditing with heterogeneous income sources the optimal enforcement policy when households are heterogeneous with respect to both income level and to income source leads to more intense income auditing for easy to monitor sources we obtain the common result that within each income source any taxpayer reporting less than a predetermined cut off level will be audited while taxpayers reporting at least this level will never be audited however this audit policy leads to very different reporting behavior depending on the income source the internal revenue service does not audit only honest taxpayers and an increase in the audit budget may lead to a larger segment of full evaders

the elasticity of taxable income with respect to marginal tax rates a critical review this paper critically surveys the large and growing literature estimating the elasticity of taxable income with respect to marginal tax rates using tax return data first we provide a theoretical framework showing under what assumptions this elasticity can be used as a sufficient statistic for efficiency and optimal tax analysis we discuss what other parameters should be estimated when the elasticity is not a sufficient statistic second we discuss conceptually the key issues that arise in the empirical estimation of the elasticity of taxable income using the example of the 1993 top individual income tax rate increase in the united states to illustrate those issues third we provide a critical discussion of selected empirical analyses of the elasticity of taxable income in light of the theoretical and empirical framework we laid out finally we discuss avenues for future research jel h24 h31 j22

labor market institutions taxation and the underground economy abstract the paper aims at qualifying the links between labor market institutions taxation tax monitoring and underground economic activity the proposed model is a continuous time matching model with one commodity roduced either overground or underground underground economic activity arises because of partial compliance with regulations and tax contributions imposed by the government vacancies and workers search are directed at a specific labor market workers are heterogenous in the subjective cost they face when operating in the irregular sector analytical and numerical investigations suggest that interactions between regular and irregular activities can affect standard results of policy interventions in that respect the paper supports the view that policies aiming at increasing individuals benefits of participating in the regular sector are more desirable than a deterrence policy

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

the effect of marginal tax rates on taxable income a panel study of the 1986 tax reform act this paper uses a treasury department panel of more than 4 000 taxpayers to estimate the sensitivity of taxable income to changes in tax rates on the basis of a comparison of the tax returns of the same individual taxpayers before and after the 1986 tax reform the analysis emphasizes that the response of taxable income involves much more than a change in the traditional measures of labor supply the evidence shows an elasticity of taxable income with respect to the marginal net of tax rate that is at least one and could be substantially higher the implications for recent tax rate changes are discussed

unwilling or unable to cheat evidence from a tax audit experiment in denmark this paper analyzes a tax enforcement field experiment in denmark in the base year a stratified and representative sample of over 40 000 individual income tax filers was selected for the experiment half of the tax filers were randomly selected to be thoroughly audited while the rest were deliberately not audited the following year threat of audit letters were randomly assigned and sent to tax filers in both groups we present three main empirical findings first using baseline audit data we find that the tax evasion rate is close to zero for income subject to third party reporting but substantial for self reported income since most income is subject to third party reporting the overall evasion rate is modest second using quasi experimental variation created by large kinks in the income tax schedule we find that marginal tax rates have a positive impact on tax evasion for self reported income but that this effect is small in comparison to legal avoidance and behavioral responses third using the randomization of enforcement we find that prior audits and threat of audit letters have significant effects on self reported income but no effect on third party reported income all these empirical results can be explained by extending the standard model of rational tax evasion to allow for the key distinction between self reported and third party reported income

a contest with the taxman the impact of tax rates on tax evasion and wastefully invested resources abstract we develop a moral hazard model with auditing where both the principal and the agent can influence the probability that the true state of nature is verified this setting is widely applicable for situations where fraudulent reporting with costly state verification takes place however we use the framework to investigate tax evasion we model tax evasion as a concealment detection contest between the taxpayer and the authority we show that higher tax rates cause more evasion and increase the resources wasted in the contest additionally we find conditions under which a government should enforce incentive compatible auditing in order to reduce wasted resources

do taxes matter lessons from the 1980 s the response of the economy to two major although in important respects offsetting tax reforms has been much smaller than ardent supply side revolutionaries expected thus suggesting that a reassessment of the grounds for revolt is in order this paper offers such a reassessment by first discussing how the evidence from the tax reforms of 1981 and 1986 reflects on our understanding of the response to taxation with particular reference to savings and capital gains realizations i then reconstruct a 1992 view about how taxes affect behavior a unifying theme is that the tax system does much more than alter the relative prices of real variables it also provides incentives to misreport income restructure financial claims time transactions change the legal form of organization and so on for this reason observed low tax elasticities of real variables may be due to either low elasticities of substitution or the fact that tax policy changes opportunity sets in complex ways disentangling these explanations requires an emphasis on the transaction based nature of the tax system and the administration and enforcement of tax laws this abstract was borrowed from another version of this item

free riding and uncertainty this paper examines the effects of uncertainty on pure public good provision and free riding behavior two models are presented in the first nash behavior is assumed and uncertainty is with respect to the contributions of the rest of the community for the second model non nash behavior is assumed and uncertainty concerns the nonzero response that a representative individual s optimizing choice will cause in the community propositions provide sufficient conditions for increased risk to worsen free riding behavior in the two models for nash behavior we also give the sufficient condition for increased risk to ameliorate free riding behavior the effects of group size on free riding are also explored for uncertain responses by the community

on the path dependence of tax compliance abstract this paper presents experimental evidence that tax compliance is path dependent for given values of the audit probability and the fine for tax evasion we compare the income declaration of subjects who faced a change in one of the two parameters to that of subjects who experienced no such parameter change we show that past tax enforcement regimes continue to have an impact on current income declarations this finding may be explained by reference dependent preferences and it has important policy implications for instance legal transplants cannot be expected to reliably yield similar behavior in countries with different legal histories

why is there so little money in u s politics in this paper we argue that campaign contributions are not a form of policy buying but are rather a form of political participation and consumption we summarize the data on campaign spending and show through our descriptive statistics and our econometric analysis that individuals not special interests are the main source of campaign contributions moreover we demonstrate that campaign giving is a normal good dependent upon income and campaign contributions as a percent of gdp have not risen appreciably in over 100 years if anything they have probably fallen we then show that only one in four studies from the previous literature support the popular notion that contributions buy legislators votes finally we illustrate that when one controls for unobserved constituent and legislator effects there is little relationship between money and legislator votes thus the question is not why there is so little money politics but rather why organized interests give at all we conclude by offering potential answers to this question this abstract was borrowed from another version of this item

campaign spending in congressional elections campaign spending in congressional elections i introduction empirical studies of the effects of campaign spending on the outcome of congressional elections have found that campaign spending by incumbents is not as effective as that of their challengers indeed kau and rubin 1982 and jacobson 1985 1987 find that incumbent spending reduces the number of votes they receive and netter 1983 that it increases the challenger s votes incumbents seeking reelection however are very successful winning nine times out of ten in the postwar era if their campaign spending is so inefficient why do incumbents continue to outspend their challengers in a majority of elections we argue that these researchers counterintuitive findings are the result of using models which do not adequately correct for the simultaneous determination of the election outcome and campaign contributions and which do not include an electoral check on incumbent behavior 1 in their studies jacobson and netter as well as lott 1986 and laband and lentz 1985 assume the incumbent s ability to repel challengers is independent of his or her behavior while in office few would agree that the electoral check is so ineffective we develop a simultaneous model to correct these deficiencies it captures the effects of campaign expenditures tenure the consistency of the incumbent s votes with his constituents preferences and the size of the voter turnout on the votes received by incumbents and challengers in four congressional elections between 1978 and 1984 the model is very robust over these four elections the use of primary election data insures model identification ii model and empirical measures we assume that the platforms of any two candidates for a political office can be measured along a single left right spectrum voters know their preferred position on the dimension but cannot observe the positions of the two candidates with certainty because of rational ignorance a theory accepted since downs 1957 following congleton 1986 we assume voters are risk averse and receive more utility from candidates with positions closer to the voters preferred position but lose utility as the candidate s position becomes more uncertain voters compare the candidates and vote for the one that provides them greater expected utility voters can observe the incumbent s performance and are thus less uncertain of his views and credibility uncertainty should decrease with an incumbent s tenure in office tenure provides voters with knowledge of the incumbent s position and the incumbent with political capital this accumulation of political capital may make it more difficult for challengers to mount a successful campaign in this sense tenure acts as a barrier to entry 2 if all incumbents were at the same point on the spectrum as the median voter of their districts all incumbents would win reelection if all potential challengers were aware of this fact they would not challenge since campaigns are costly but one observes many challengers and some defeated incumbents so we proceed from the hypothesis that challengers enter the race when they perceive a gap between the position of the incumbent and that of the median voter and assume this position as their platform a large difference between the incumbent s position and the median voter s position increases the likelihood of a successful challenge if voters were certain of the positions of both candidates and the challenger s assessment was correct the challenger would win but challengers are usually less well known than incumbents and this additional uncertainty gives incumbents an advantage thus the challenger must convince the voters that his or her position is closest to the median voter s position and advertising is the primary means to that end 3 repetition of the message reduces the voters uncertainty over a challenger s position

comparing labor supply elasticities in europe and the united states new results we suggest the first large scale international comparison of labor supply elasticities for 17 european countries and the united states using a harmonized empirical approach we find that own wage elasticities are relatively small and more uniform across countries than previously considered nonetheless such differences do exist and are found not to arise from different tax benefit systems wage hour levels or demographic compositions across countries suggesting genuine differences in work preferences across countries furthermore three other findings are consistent across countries the extensive margin dominates the intensive margin for singles this leads to larger responses in low income groups and income elasticities are extremely small

the impact of public transfer expenditures on tax evasion an experimental approach abstract this paper outlines the methodology and results of an experiment undertaken to analyze primarily the impact of public sector transfer payments on tax evasion behaviour apart from the use of transfer payments further explanatory variables used were income expected auditing probability and perceived tax burden the influence of these variables on both the propensity to evade taxes and the extent of taxes evaded are investigated in an attempt to add more realism some innovative changes to the experimental approach were incorporated

social norms savings behavior and growth we argue that many goods and decisions are not allocated or made through markets we interpret an agent s status as a ranking device that determines how well he or she fares in the nonmarket sector the existence of a nonmarket sector can endogenously generate a concern for relative position in for example the income distribution so that higher income implies higher status moreover it can naturally yield multiple equilibria it is thus possible to explain differences in growth rates across countries without recourse to differences in underlying preferences technologies or endowments different social organizations lead to different reduced form preferences which lead to different growth rates

the ideological component of senate voting different principles or different principals evidence exists on both sides of the question of whether or not legislator specific ideologically driven shirking of constituent interest occurs in this paper we use a well known model of such shirking by senators as our point of departure and add measures of inter state constituent interests the role of campaign contributions and hence the importance of whether or not senators are up for reelection we find some evidence that the model provides a stronger explanation for senators up for reelection than for those who are not and that campaign contributions help determine voting decisions by these legislators finally accounting for inter state constituent interests shirking is not a significant variable in the voting decisions of senators facing reelection thus it appears that the reelection interests of some senators have been mistaken for ideologically driven shirking

optimal dynamic tax evasion abstract we study optimal dynamic tax evasion in the framework proposed by lin and yang 2001 and dzhumashev and gahramanov 2011 with some modifications a more flexible utility function a more realistic audit process and a penalty function which can be defined both on evaded income and evaded taxes in the former case the elasticity between tax rate and tax evasion is positive unless the subsistence consumption level is higher than a given threshold in the latter case the relationship is usually negative but the value of elasticity depends on the form of absolute risk aversion in particular we show that for increasing relative risk aversion for a tax rate higher than 50 the elasticity may even become positive us data are consistent with irra preferences

health and other asset holdings despite clear evidence of correlations between financial and medical statuses and decisions most models treat financial and health related choices separately this article bridges this gap by proposing a tractable dynamic framework for the joint determination of optimal consumption portfolio holdings health investment and health insurance we solve for the optimal rules in closed form and capitalize on this tractability to gain a better understanding of the conditions under which separation between financial and health related decisions is sensible and of the pathways through which wealth and health determine allocations welfare and other variables of interest such as expected longevity or the value of health furthermore we show that the model is consistent with the observed patterns of individual allocations and provide realistic estimates of the parameters that confirm the relevance of all the main characteristics of the model

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

experimental evidence on the relationship between tax evasion opportunities and labor supply abstract motivated by the observation that access to evasion opportunities is distributed heterogeneously across the labor market this paper examines the extent to which labor supply elasticities with respect to tax rates depend on such evasion opportunities we first discuss the channels through which access to evasion affects labor supply responses and then set up a laboratory experiment n 205 in which all participants undertake a real effort task over several rounds subjects face a tax rate that varies across rounds and are required to pay taxes on earned income the treatment group is given the opportunity to underreport income while the control group is not we find evidence that participants in the treatment group respond differently to changes in the net of tax rate than participants in the control group the effect is more prevalent when tax rates fall additionally the direction of the treatment effect is dependent on the evolution of tax rates across rounds

the welfare cost of the underground economy this paper estimates the welfare cost of taxes that create an incentive for resources to flow to the underground or untaxed sector in the united states using a general equilibrium model of the american economy the welfare cost is found to be large and growing in absolute and relative terms over time in 1980 the welfare cost may be as much as 220 billion or over 9 percent of output even conservative estimates place the loss at nearly 100 billion it also is found that small reductions in tax rates substantially reduce the welfare cost

votes or money theory and evidence from the us congress abstract this paper investigates the relationship between the size of interest groups in terms of voter representation and the interest group s campaign contributions to politicians we uncover a robust hump shaped relationship between the voting share of an interest group and its contributions to a legislator this pattern is rationalized in a simultaneous bilateral bargaining model where the larger size of an interest group affects the amount of surplus to be split with the politician thereby increasing contributions but is also correlated with the strength of direct voter support the group can offer instead of monetary funds thereby decreasing contributions the model yields simple structural equations that we estimate at the district level employing data on individual and pac donations and local employment by sector this procedure yields estimates of electoral uncertainty and politicians effectiveness as perceived by the interest groups our approach also implicitly delivers a novel method for estimating the impact of campaign spending on election outcomes we find that an additional vote costs a politician on average 145

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

an empirical test for tax evasion this paper develops a methodology that uses microeconomic data from individual tax returns to test for the presence of tax evasion the test is then applied to a large sample of taxpayers drawn from the u s treasury tax file for 1977 the frequency of evasion indicated by the test is significantly greater than zero and within the wide range that other evidence suggests is the extent of evasion the associations between evasion and characteristics of the taxpayer such as marginal tax rate income age and marital status are also investigated and compared to the findings of earlier studies

tax evasion and optimal environmental taxes abstract this paper introduces a new argument to the debate about the role of environmental taxes in modern tax systems some environmental taxes particularly taxes on gasoline or electricity are more difficult to evade than taxes on labor or income when the tax base is shifted in a revenue neutral manner toward these environmental taxes the result is a net reduction in the amount of tax evasion using a carbon tax as a motivating example the tax evasion effect is shown to sharply reduce the welfare cost of controlling emissions a simple computable general equilibrium model suggests that the impact of considering tax evasion can be large costs are lowered by 28 in the united states by 89 in china and by 97 in india in countries with high levels of pre existing tax evasion a carbon tax will pay for itself through improvements in the efficiency of the tax system

bunching and non bunching at kink points of the swedish tax schedule recent microeconometric studies of taxpayers responsiveness to taxation have shown that intensive margin labor supply and earnings elasticities typically are modest and sometimes equal to zero however a common view is that long run responses might still be large since micro estimates are downward biased owing to optimization frictions in this paper we estimate the taxable income elasticity at a very large kink point of the swedish tax schedule using the bunching method during the period of study the change in the log net of tax rate reached a maximum value of 45 6 interestingly we obtain a precise elasticity estimate of zero for wage earners at this large kink the size of the kink allows us to derive tighter bounds on the long run elasticity than previous studies if wage earners on average tolerate 1 of their disposable income in optimization costs the upper bound on the long run taxable income elasticity is 0 39 we also evaluate the performance of the bunching estimator by performing monte carlo simulations

income tax evasion labour supply and the equity efficiency tradeoff abstract this paper is an attempt to incorporate tax evasion into the analysis of optimum income taxation a model of variable labour supply with tax evasion is used to derive supply functions for labour in regular and irregular markets given taxpayer behaviour the government chooses tax rates penalties and the probability of detection to maximize a utilitarian social welfare function the results consist in the derivation of a formula for the optimum marginal tax rate and a characterization of the factors determining the choice between the penalty rate and the probability of detection as instruments for the control of tax evasion

taxation wage controls and the informal sector abstract in this paper we study the effects of taxation and wage controls in a developing economy with an informal sector for that purpose we build a model with firm heterogeneity in which a formal and an informal sector endogenously emerge in some productive branches of the economy based on the assumption that the marginal cost of tax and regulation evasion increases with the size of the firm our model offers an explanation for the observed discontinuity in the distribution of firms size the missing middle three forms of dualism scale wage and evasion consistent with market segmentation are obtained the model accounts for the presence of waiting unemployment that seems particularly pervasive in urban regions a computable general equilibrium cge model for cameroon is built incorporating these features various reforms of the tax and regulation system are simulated and their effects on the extent of the informal sector are analyzed

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 bases tax rates and the elasticity of reported income abstract tax reforms usually change both tax rates and tax bases using a panel of income tax returns spanning the two major u s tax reforms of the 1980s and a number of smaller tax law changes i find that the elasticity of income reported on personal income tax returns depends on the available deductions this highlights that this key behavioral elasticity is not an immutable parameter but rather that it can be to some extent controlled by policy makers one implication is that base broadening reduces the marginal efficiency cost of taxation the results are very similar for all income categories indicating that the rich are more responsive to tax rates because tax rules that apply to them are different their tax base is narrower the point estimates indicate that the tax reform act of 1986 reduced the marginal cost of collecting a dollar of tax revenue with roughly half of this reduction due to the base broadening and the other half due to the tax rate reduction as a by product the analysis in this paper offers a reconciliation of disparate estimates obtained by previous studies of the tax responsiveness of income

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

net wage illusion in a real effort experiment in a controlled laboratory experiment subjects had to fold letters in order to earn money while the net income per letter was the same in the three treatments the gross income varied and the tax rate was 0 25 and 50 percent although work incentives should be the same in all treatments subjects worked harder and longer when they were taxed we conclude that this is because of a net wage illusion effect the existence of this effect demonstrates that not only are the tax rate and the tax base of importance for work incentives but the perception of a tax is also important

a general equilibrium model of crime commission and prevention abstract the model developed in this paper features a general equilibrium specification of the relationships among criminals victims of crime and a law enforcement agency these relationships are employed to endogenously derive an explicit intuitively appealing technology of crime commission and prevention the solution to the present model is therefore obtained with a set of more elementary assumptions than the previous literature where arbitrary curvature assumptions are invoked

endogenous fiscal policies environmental quality and status seeking behavior abstract this paper analyzes endogenous fiscal policy in an endogenous growth model where agents care about social status and environmental quality the quest for a higher status is assimilated to a preference for capital wealth the government uses income tax to finance infrastructure and environmental protection we find that accounting for preferences for social status and environmental quality may lead to an allocation of tax revenue in favor of a cleanup effort to the detriment of infrastructure economic growth is not necessarily and negatively affected by this allocation as it is partly explained by an excessive accumulation of capital wealth due to the quest of status status seeking can however harm economic growth and environmental quality when its motive is important enough finally we show that economic growth may be consistent with environmental preservation but is not necessarily welfare improving as in the case of absence of status seeking behavior

the economic theory of vertical restraints the types of contracts arising in a typical vertical manufacturer retailer relationship are more sophisticated than a simple uniform price in addition to setting per unit prices manufacturers and retailers also revert to non linear pricing and non price instruments these instruments or contracts are referred to as vertical restraints and can take the form of franchise fees resale price maintenance exclusive dealing exclusive territories and slotting allowances the use and the effects of one type of instrument versus another depend crucially on specific market assumptions upstream and downstream and on the division of bargaining power between manufacturers and retailers this paper surveys the industrial organization literature on retail pricing and shows that vertical restraint instruments have important effects on producer and consumer prices market structure efficiency and welfare

a simple test of the thesis that committee jurisdictions shape corporate pac contributions the results presented in the previous section tend to confirm the hypothesis that committee assignments shape the pattern of corporate pac contributions this note corroborates existing research on corporate pacs at a significantly lower level of aggregation than the samples on which existing research has been conducted further because a nonparametric test was used rather than the more standard regressional analysis these results should increase our confidence that the essential institutions of government affect and engender responses by economic agents

constrained efficient fine cum tax rate structures the case of constant relative risk aversion this paper explores the possibility that fines and tax rates impose different welfare costs on different types of taxpayer so that the government may want to apply different fine tax rate treatments to different types of taxpayer under the assumption that taxpayers exhibit constant relative risk aversion we characterize the constrained pareto efficient fine tax rate structure showing that i the co existence of compliers the above ground economy and evaders the underground economy is typical at the pareto optimum and ii pareto efficiency requires compliers to face tax rates no higher and fines no lower than those faced by evaders

status concern and the exploitation of common pool renewable resources we examine the impact of social status concern in a common pool renewable resource oligopoly a small number of players share access to a common pool resource and sell their production in a common market where they are oligopolists we depart from the mainstream literature on common pool resource oligopolies by considering that each player cares about her social status we allow for two channels to impact a player s welfare harvest and profits under the first channel a player has a bump in her utility when her harvest is larger than the average harvest of the rest of the players in this case we show that the presence of this channel exacerbates the tragedy of the commons under the second channel a player enjoys a bump in her utility if she manages to earn more profits than the average profits of the other players in this case we show that social status concern may temporarily alleviate the tragedy of the commons it results in a decrease of extraction over an interval of stock sizes

the market for congressional votes is timing of contributions everything this study utilizes the timing of campaign contributions to identify whether the objective of political action committees pacs is to influence congressional votes or solely to elect a preferred candidate the results show that pac behavior is consistent with an attempt to purchase congressional votes and to influence elections contributions increase in the weeks surrounding legislative events of importance to pacs and elections the magnitude of increased contributions is examined the article also addresses the lack of legal enforcement mechanisms in vote for contribution agreements it develops hypotheses regarding the timing of contributions as an inexpensive mechanism to assure contractual performance hypotheses are tested regarding pacs incentives to mitigate potential cheating by legislators on such agreements results show that pacs use the timing of contributions as a mechanism to prevent legislators from reneging on vote for contribution trades