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Tax Evasion and the Source of Income

Author

Listed:
  • Klarita Gërxhani

    (Faculty of Economics and Econometrics, University of Amsterdam)

  • Arthur Schram

    (Faculty of Economics and Econometrics, University of Amsterdam)

Abstract
This discussion paper resulted in a publication in the (2006). Volume 27, issue 3, pages 402-422. A series of experiments in Albania and the Netherlands give us the opportunity to compare behavioral patterns related to tax evasion. Subjects have to decide between a random 'registered' income, the realization of which will be known to the experimenter for sure, and a random 'unregistered' income that will only be known to the experimenter with some (audit) probability. After the actual income has been determined, subjects have to report it and pay taxes accordingly. If they are audited, there is a fine for underreporting. This experiment was organized (separately) among high school pupils, high school teachers, university students, university teachers and university (non-academic) staff, in Albania and the Netherlands. The results show that (i) when tax evasion is possible, subject choose unregistered income more frequently; (ii) many subjects are willing to choose an income that allows for tax evasion but report their income honestly anyway; (iii) compliance increases with the audit probability; (iv) individual decisions to choose a type of income (registered vs. unregistered) and to evade taxes are made simultaneously; (v) Albanians evade taxes less than the Dutch do; (vi) pupils and students evade taxes more than teachers and personnel do; (vii) the differences across groups within a country are at least as large as the differences between the two countries. Finally, we argue that the distinct levels of tax evasion outside of the laboratory in the two countries are not attributable to different tax attitudes or cultures, but to different tax institutions and the way individuals have learned to deal with them.

Suggested Citation

  • Klarita Gërxhani & Arthur Schram, 2002. "Tax Evasion and the Source of Income," Tinbergen Institute Discussion Papers 02-098/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20020098
    as

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    File URL: https://papers.tinbergen.nl/02098.pdf
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    References listed on IDEAS

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    1. Feige,Edgar L. (ed.), 1989. "The Underground Economies," Cambridge Books, Cambridge University Press, number 9780521262309, September.
    2. Roth, Alvin E. & Vesna Prasnikar & Masahiro Okuno-Fujiwara & Shmuel Zamir, 1991. "Bargaining and Market Behavior in Jerusalem, Ljubljana, Pittsburgh, and Tokyo: An Experimental Study," American Economic Review, American Economic Association, vol. 81(5), pages 1068-1095, December.
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    4. Unknown, 1986. "Letters," Choices: The Magazine of Food, Farm, and Resource Issues, Agricultural and Applied Economics Association, vol. 1(4), pages 1-9.
    5. Friedland, Nehemiah & Maital, Shlomo & Rutenberg, Aryeh, 1978. "A simulation study of income tax evasion," Journal of Public Economics, Elsevier, vol. 10(1), pages 107-116, August.
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    Cited by:

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    2. Jordi Brandts & Tatsuyoshi Saijo & Arthur Schram, 2004. "How Universal is Behavior? A Four Country Comparison of Spite and Cooperation in Voluntary Contribution Mechanisms," Public Choice, Springer, vol. 119(3_4), pages 381-424, June.
    3. Klarita Gërxhani, 2004. "The Informal Sector in Developed and Less Developed Countries: A Literature Survey," Public Choice, Springer, vol. 120(3_4), pages 267-300, September.

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    More about this item

    Keywords

    Tax evasion; Cross-country studies; Experiments.;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O57 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries

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