Why Pay Taxes When No One Else Does?
22 Pages Posted: 13 May 2009
In this paper we try to understand the phenomena whereby a large proportion of the population evades tax payments. We present a model which incorporates elements from the theory of information cascades with the standard model of tax evasion and analyze the connection between the decision of a potential tax evader, the number of tax evaders and the number caught in previous periods. General conditions exist under which any expected utility maximizing tax evaders will decide to emulate other tax evaders.
Keywords: tax evasion, uncertainty, information cascades
JEL Classification: H26, H31, D82
Suggested Citation: Suggested Citation