Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/20630 
Year of Publication: 
2004
Series/Report no.: 
IZA Discussion Papers No. 1359
Publisher: 
Institute for the Study of Labor (IZA), Bonn
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.
Subjects: 
social interactions
tax evasion
simultaneous tobit
laboratory experiments
JEL: 
Z13
C92
C24
D63
H26
Document Type: 
Working Paper

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