Tax Evasion and Social Interactions

31 Pages Posted: 15 Jan 2005

See all articles by Bernard Fortin

Bernard Fortin

Université Laval - Département d'Économique; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Guy Lacroix

Université Laval - Département d'Économique; IZA Institute of Labor Economics

Marie Claire Villeval

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

Multiple version iconThere are 2 versions of this paper

Date Written: October 2004

Abstract

The paper extends the standard tax evasion model by allowing for social interactions. In Manski's (1993) nomenclature, our model takes into account social conformity effects (i.e., endogenous interactions), fairness effects (i.e., exogenous interactions) and sorting effects (i.e., correlated effects). Our model is tested using experimental data. Participants must decide how much income to report given their tax rate and audit probability, and given those faced by the other members of their group as well as their mean reported income. The estimation is based on a two-limit simultaneous tobit with fixed group effects. A unique social equilibrium exists when the model satisfies coherency conditions. In line with Brock and Durlauf (2001b), the intrinsic nonlinearity between individual and group responses is sufficient to identify the model without imposing any exclusion restrictions. Our results are consistent with fairness effects but reject social conformity and correlated effects.

Keywords: social interactions, tax evasion, simultaneous tobit, laboratory experiments

JEL Classification: H26, D63, C24, C92, Z13

Suggested Citation

Fortin, Bernard and Lacroix, Guy and Villeval, Marie Claire, Tax Evasion and Social Interactions (October 2004). IZA Discussion Paper No. 1359; CIRPEE Working Paper 04-32, Available at SSRN: https://ssrn.com/abstract=609921

Bernard Fortin

Université Laval - Département d'Économique ( email )

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Guy Lacroix

Université Laval - Département d'Économique ( email )

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IZA Institute of Labor Economics

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Marie Claire Villeval (Contact Author)

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IZA Institute of Labor Economics

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