Tax Evasion, Welfare Fraud, and 'The Broken Windows' Effect: An Experiment in Belgium, France and the Netherlands

50 Pages Posted: 15 Apr 2011

See all articles by Mathieu Lefebvre

Mathieu Lefebvre

University of Liege - Research Center on Public and Population Economics

Pierre Pestieau

University of Liège - Research Center on Public and Population Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE)

Arno Riedl

Maastricht University; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Netspar

Marie Claire Villeval

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

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Date Written: April 13, 2011

Abstract

In a series of experiments conducted in Belgium (Wallonia and Flanders), France and the Netherlands, we compare behavior regarding tax evasion and welfare dodging, with and without information about others’ behavior. Subjects have to decide between a ‘registered’ income, the realization of which will be known to the tax authority for sure, and an ‘unregistered’ income that will only be known with some probability. This unregistered income comes from self-employment in the Tax treatment and from black labor supplementing some unemployment compensation in the Welfare treatment. Subjects have then to decide on whether reporting their income or not, knowing the risk of detection. The results show that (i) individuals evade more in the Welfare treatment than in the Tax treatment; (ii) many subjects choose an option that allows for tax evasion or welfare fraud but report their income honestly anyway; (iii) examples of low compliance tend to increase tax evasion while examples of high compliance exert no influence; (iv) tax evasion is more frequent in France and the Netherlands; Walloons evade taxes less than the Flemish. There is no cross-country difference in welfare dodging.

Keywords: tax evasion, social fraud, social comparisons, cross-country comparisons, experiments

JEL Classification: H260, H310, I380, C910

Suggested Citation

Lefebvre, Mathieu and Pestieau, Pierre and Riedl, Arno M. and Villeval, Marie Claire, Tax Evasion, Welfare Fraud, and 'The Broken Windows' Effect: An Experiment in Belgium, France and the Netherlands (April 13, 2011). CESifo Working Paper Series No. 3408, Available at SSRN: https://ssrn.com/abstract=1808632

Mathieu Lefebvre (Contact Author)

University of Liege - Research Center on Public and Population Economics ( email )

B-4000 Liege
Belgium

Pierre Pestieau

University of Liège - Research Center on Public and Population Economics ( email )

Boulevard du Rectorat, 7, Batiment 31
Sart-Tilman
B-4000 Liege, 4000
Belgium
+32 4 366 3108 (Phone)
+32 4 366 3106 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Catholic University of Louvain (UCL) - Center for Operations Research and Econometrics (CORE) ( email )

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Louvain la Neuve
Belgium

Arno M. Riedl

Maastricht University ( email )

Department of Economics (AE1)
P.O. Box 616
Maastricht, 6200 MD
Netherlands

IZA Institute of Labor Economics

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

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Marie Claire Villeval

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

Global Labor Organization (GLO) ( email )

Collogne
Germany

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