Why Pay Taxes When No One Else Does?

22 Pages Posted: 13 May 2009

See all articles by Gil S. Epstein

Gil S. Epstein

Bar-Ilan University - Department of Economics; IZA Institute of Labor Economics; University College London - CReAM - Centre for Research and Analysis of Migration

Ira N. Gang

Rutgers University - Economics Department; IZA Institute of Labor Economics

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Abstract

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

Epstein, Gil S. and Gang, Ira N., Why Pay Taxes When No One Else Does?. IZA Discussion Paper No. 4153. Available at SSRN: https://ssrn.com/abstract=1402460

Gil S. Epstein (Contact Author)

Bar-Ilan University - Department of Economics ( email )

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HOME PAGE: http://faculty.biu.ac.il/~epsteig/

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Ira N. Gang

Rutgers University - Economics Department ( email )

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HOME PAGE: http://econweb.rutgers.edu/gang/research

IZA Institute of Labor Economics ( email )

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Germany

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