Tax Evasion: Cheating Rationally or Deciding Emotionally?

IZA Discussion Paper No. 3103

GATE Working Paper No. 07-24

40 Pages Posted: 9 Nov 2007

See all articles by Giorgio Coricelli

Giorgio Coricelli

University of Southern California - Department of Economics

Mateus Joffily

University of Lyon 2

Claude Montmarquette

Center for Interuniversity Research and Analysis on Organization (CIRANO)

Marie Claire Villeval

Groupe d'Analyse et de Théorie Economique (GATE), CNRS; IZA Institute of Labor Economics

Date Written: October 2007

Abstract

The economic models of tax compliance predict that individuals should evade taxes when the expected benefit of cheating is greater than its expected cost. When this condition is fulfilled, the high compliance however observed remains a puzzle. In this paper, we investigate the role of emotions as a possible explanation of tax compliance. Our laboratory experiment shows that emotional arousal, measured by Skin Conductance Responses, increases in the proportion of evaded taxes. The perspective of punishment after an audit, especially when the pictures of the evaders are publicly displayed, also raises emotions. We show that an audit policy that induces shame on the evaders favors compliance.

Keywords: tax evasion, emotions, neuro-economics, physiological measures, shame, experiments

JEL Classification: C91, C92, D87, H26

Suggested Citation

Coricelli, Giorgio and Joffily, Mateus and Montmarquette, Claude and Villeval, Marie Claire, Tax Evasion: Cheating Rationally or Deciding Emotionally? (October 2007). IZA Discussion Paper No. 3103; GATE Working Paper No. 07-24. Available at SSRN: https://ssrn.com/abstract=1028476

Giorgio Coricelli

University of Southern California - Department of Economics ( email )

3620 South Vermont Ave. Kaprielian (KAP) Hall, 300
Los Angeles, CA 90089
United States

HOME PAGE: http://dornsife.usc.edu/coricelli/

Mateus Joffily

University of Lyon 2 ( email )

93 Chemin des Mouilles
Ecully, 69009
France

Claude Montmarquette

Center for Interuniversity Research and Analysis on Organization (CIRANO) ( email )

2020 rue University, 25th Floor
Montreal, Quebec H3C 3J7
Canada
(514) 985-4015 (Phone)
(514) 985-4039 (Fax)

Marie Claire Villeval (Contact Author)

Groupe d'Analyse et de Théorie Economique (GATE), CNRS ( email )

93, chemin des Mouilles
Ecully, 69130
France
+33 472 86 60 79 (Phone)
+33 472 86 60 90 (Fax)

HOME PAGE: http://www.gate.cnrs.fr/equipe/perso/villeval/villeval.html

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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