Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/180553 
Year of Publication: 
2018
Series/Report no.: 
IZA Discussion Papers No. 11535
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
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.
Subjects: 
tax evasion
social networks
network centrality
optimal auditing
social comparison
self comparison
habit
indirect effects
relative consumption
JEL: 
H26
D85
K42
Document Type: 
Working Paper

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