Tax Evasion and Social Interactions

GATE Working Paper No. 04-10

30 Pages Posted: 12 Jun 2006 Last revised: 10 May 2010

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)

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Date Written: September 1, 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: laboratory experiments, simultaneous Tobit, social interactions, tax evasion

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

Suggested Citation

Fortin, Bernard and Lacroix, Guy and Villeval, Marie Claire, Tax Evasion and Social Interactions (September 1, 2004). GATE Working Paper No. 04-10, Available at SSRN: https://ssrn.com/abstract=907440 or http://dx.doi.org/10.2139/ssrn.907440

Bernard Fortin (Contact Author)

Université Laval - Département d'Économique ( email )

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Guy Lacroix

Université Laval - Département d'Économique ( email )

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Ste-Foy, Quebec G1K 7P4 G1K 7P4
Canada
418-656-2024 (Phone)
418-656-7798 (Fax)

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

Marie Claire Villeval

Groupe d'Analyse et de Théorie Economique (GATE), CNRS ( email )

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Ecully, 69130
France
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+33 472 86 60 90 (Fax)

HOME PAGE: http://www.gate.cnrs.fr/equipe/perso/villeval/villeval.html

IZA Institute of Labor Economics

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Bonn, D-53072
Germany

Global Labor Organization (GLO) ( email )

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Germany

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