Tax Evasion on a Social Network

37 Pages Posted: 30 May 2018

See all articles by Duccio Gamannossi degl’Innocenti

Duccio Gamannossi degl’Innocenti

University of Exeter

Matthew D. Rablen

University of Sheffield - Department of Economics

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We relate tax evasion behavior to a substantial literature on self and social comparison in judgements. Taxpayers engage in tax evasion as a means to boost their expected consumption relative to others in their "local" social network, and relative to past consumption. The unique Nash equilibrium of the model relates optimal evasion to a (Bonacich) measure of network centrality: more central taxpayers evade more. The indirect revenue effects from auditing are shown to be ordinally equivalent to a related Bonacich centrality. We generate networks corresponding closely to the observed structure of social networks observed empirically. In particular, our networks contain celebrity taxpayers, whose consumption is widely observed, and who are systematically of higher wealth. In this context we show that, if the tax authority can observe the social network, it is able to raise its audit revenue by around six percent.

Keywords: tax evasion, social networks, network centrality, optimal auditing, social comparison, self comparison, habit, indirect effects, relative consumption

JEL Classification: H26, D85, K42

Suggested Citation

Gamannossi degl’Innocenti, Duccio and Rablen, Matthew D., Tax Evasion on a Social Network. IZA Discussion Paper No. 11535. Available at SSRN:

Duccio Gamannossi degl’Innocenti (Contact Author)

University of Exeter

Northcote House
The Queen's Drive
Exeter, EX4 4QJ
United Kingdom

Matthew D. Rablen

University of Sheffield - Department of Economics ( email )

9 Mappin Street
Sheffield, S1 4DT
United Kingdom

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