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Honesty in a Signaling Model of Tax Evasion

Author

Listed:
  • Vitaly Pruzhansky

    (Faculty of Economics and Business Administration, Vrije Universiteit Amsterdam)

Abstract
We study the phenomenon of tax evasion using a simple signaling model, in which the signal is taxpayer's reported income. The novelty of our approach lies in the way we define honesty. Specifically, we advocate the view that there are no absolutely honest taxpayers: all taxpayers may under certain conditions become evaders. We investigate the implications of this type of honesty on the equilibria of the model, and compare it to the basic case, in which honesty is absent. Our analysis completely characterizes all perfect Bayesian Nash equilibria of the game, assesses their stability and welfare properties.

Suggested Citation

  • Vitaly Pruzhansky, 2004. "Honesty in a Signaling Model of Tax Evasion," Tinbergen Institute Discussion Papers 04-022/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20040022
    as

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    File URL: https://papers.tinbergen.nl/04022.pdf
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    References listed on IDEAS

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    1. Benno Torgler, 2002. "Speaking to Theorists and Searching for Facts: Tax Morale and Tax Compliance in Experiments," Journal of Economic Surveys, Wiley Blackwell, vol. 16(5), pages 657-683, December.
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    4. Graetz, Michael J & Reinganum, Jennifer F & Wilde, Louis L, 1986. "The Tax Compliance Game: Toward an Interactive Theory of Law Enforcement," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 2(1), pages 1-32, Spring.
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    6. Brian Erard & Jonathan S. Feinstein, 1994. "Honesty and Evasion in the Tax Compliance Game," RAND Journal of Economics, The RAND Corporation, vol. 25(1), pages 1-19, Spring.
    7. Swinkels, Jeroen M., 1992. "Evolutionary stability with equilibrium entrants," Journal of Economic Theory, Elsevier, vol. 57(2), pages 306-332, August.
    8. Torgler, Benno, 2003. "To evade taxes or not to evade: that is the question," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 32(3), pages 283-302, July.
    9. Reinganum, Jennifer F & Wilde, Louis L, 1986. "Equilibrium Verification and Reporting Policies in a Model of Tax Compliance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(3), pages 739-760, October.
    10. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
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    12. Jorgen W. Weibull, 1997. "Evolutionary Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262731215, April.
    13. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
    14. repec:bla:jecsur:v:16:y:2002:i:5:p:657-83 is not listed on IDEAS
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    Cited by:

    1. Gabriela S. Pantoja & Rodrigo S. Penaloza, 2014. "Tax evasion under behavioral structures," Economia, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 15(1), pages 30-40.

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    More about this item

    Keywords

    Auditing; equilibrium refinements; tax morale; underground economies;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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