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Tax Morale and the Taming of Leviathan

21 Pages Posted: 8 Jul 2005  

Jan Schnellenbach

BTU Cottbus-Senftenberg, Institute for Economics, Chair for Microeconomics; Walter Eucken Institute

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Date Written: October 2004

Abstract

An explanation for tax morale based upon a simple model of psychological costs that depend on the perceived legitimacy of public policies is introduced. It is shown that empirically observed low levels of tax evasion can be explained even for a risk-neutral taxpayer with this model. In a discussion of aggregate tax revenue, it is argued that tax revenue as a function of tax rates may differ fundamentally from the notorious Laffer curve. An incompletely informed Leviathan government that incrementally varies the tax rate in order to maximise revenue may end up on the wrong side of the Laffer curve and set too high tax rates. An explanation for tax morale based upon a simple model of psychological costs that depend on the perceived legitimacy of public policies is introduced.

Keywords: Tax evasion, tax morale, cognitive dissonance, informal institutions

JEL Classification: H26, Z13

Suggested Citation

Schnellenbach, Jan, Tax Morale and the Taming of Leviathan (October 2004). Available at SSRN: https://ssrn.com/abstract=753885 or http://dx.doi.org/10.2139/ssrn.753885

Jan Schnellenbach (Contact Author)

BTU Cottbus-Senftenberg, Institute for Economics, Chair for Microeconomics ( email )

Erich-Weinert-Str. 1
Cottbus, 03046
Germany

HOME PAGE: http://https://www.b-tu.de/fg-vwl-mikro/team/prof-dr-jan-schnellenbach

Walter Eucken Institute ( email )

Goethestr. 10
Freiburg, 79100
Germany

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

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