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Bearing the burden – Implications of tax reporting institutions and image concerns on evasion and incidence

Author

Listed:
  • Kaisa Kotakorpi

    (Finnish Centre of Excellence in Tax Systems Research (FIT), Tampere University and VATT Institute for Economic Research)

  • Tuomas Nurminen

    (Hanken School of Economics and Helsinki GSE)

  • Topi Miettinen

    (Hanken School of Economics and Helsinki GSE)

  • Satu Metsälampi

    (University of Turku)

Abstract
We investigate effects of tax reporting institutions on evasion and incidence using an experimental double auction market setting. We find that 28% of the sellers are truthful when only sellers report, but that 88% and 64% of them are truthful under costless and costly third-party reporting by buyers, respectively. Reporting behavior therefore responds to the intensity of deterrence. However, we find that prices do not fully reflect the lower taxes of the evaders. Thus, when sellers can unilaterally evade taxes, tax incidence deviates from the prediction of the standard model, and there is deadweight loss even if tax revenue is low. Pricing, incidence, and reporting patterns in all treatments can be explained by a model of lying costs with image concerns that give rise to a motivation to appear honest.

Suggested Citation

  • Kaisa Kotakorpi & Tuomas Nurminen & Topi Miettinen & Satu Metsälampi, 2022. "Bearing the burden – Implications of tax reporting institutions and image concerns on evasion and incidence," Working Papers 3, Finnish Centre of Excellence in Tax Systems Research.
    • Handle: RePEc:fit:wpaper:3
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    References listed on IDEAS

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    More about this item

    Keywords

    Tax Evasion; Tax Incidence; Third-Party Reporting; Double Auction; Social image; Experiment;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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