Tax evasion

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Tax Evasion and Social Interactions

Tax Evasion and Social Interactions

There are four reasons why such a result may obtain. First, tax evasion behavior may induce a social anti-conformity rather than a social conformity effect. In other words, partic- ipants may be inclined to deviate from the reference group’s behavior. Wenzel (2004) argues that, at least in the field of tax evasion, social norms may induce deviation from mean group response if the latter is inconsistent with individuals’ internal norms. Kooreman (2003) ob- tains such an anti-conformity effect when studying student self-esteem: the lower the group self-esteem, the higher the individual self-esteem. In our tax evasion experiment social anti- conformity is unlikely, although it can not be completely ruled out. Second, since the tax yields are used to finance scientific research, altruistic behavior may induce individuals to contribute more when the others reduce their contribution. This explanation is also unlikely to explain much of the tax evasion behavior of the participants. A third interpretation is that individuals may reduce their tax evasion whenever the group evades more out of fear this may trigger a higher audit rate in further rounds. This is unlikely because audit regimes are ex- ogenous and this was made common knowledge in the instructions. Finally, the most likely explanation is that the parameter estimate of D −i is biased because the simple two-limit to- bit omits the potential simultaneity between individual and group responses. Recall that this bias may arise from the fact that individual and group behavior feed on each another. Moffitt (2001) and Krauth (2002) insist on the potential importance of this bias when the number of individuals in the reference group is small. The results reported in columns (2)–(6) are based on the likelihood function (9) and thus explicitly accounts for this. As it stands, the model in column (2) imposes no exclusion restrictions. Identification of the parameter estimates thus rests entirely on the response variables being censored and on the error terms assumed to be normally distributed.
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Who'll stop lying under oath? Empirical evidence from Tax Evasion Games

Who'll stop lying under oath? Empirical evidence from Tax Evasion Games

Keywords: Part-time Lying, honesty, oath, commitment, Tax evasion. JEL classification: C9 ; H26. ∗ We thank James Alm, Cécile Bazart, Todd Cherry, Yannick Gabuthy, Erich Kirchler, Angela Sutan, Stefano Palminteri, Drazen Prelec, Claire Vandendriessche, Marie-Claire Villeval and participants at several seminars and conferences for their comments and the helpful discussions from which we benefited in the development of this work. We also thank Kene Boun My for his assistance in running the experiments. Jason Shogren thanks the University of Alaska-Anchorage for their support while working on this research. Stéphane Luchini thanks the Wissenschaftszentrum Berlin fur Sozialforschung (WZB) for their support while working on this research. The authors thank the Conseil Régional de Lorraine for its financial support.
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Tax Evasion, Welfare Fraud, and ”The Broken Windows” Effect: An Experiment in Belgium, France and the Netherlands

Tax Evasion, Welfare Fraud, and ”The Broken Windows” Effect: An Experiment in Belgium, France and the Netherlands

Pre- and post-experimental questionnaires While it has been found that the likelihood of tax evasion is associated with a lower degree of risk aversion (Andreoni et al., 1998; Kirchler, 2007; Torgler, 2007), it is unknown whether this also holds for welfare fraud and whether risk attitude mediates the influence of social information on individual fraud behavior. To investigate this, we elicited our participants’ risk attitude at the very beginning of all the sessions, using the Holt and Laury (2002) procedure (see also Cohen et al., 1987). Subjects made ten successive choices between two paired lotteries, “option A” and “option B” (see Appendix A). The payoffs for option A are either €2 or €1.60 and those for the riskier option B are either €3.85 or €0.10. In the first decision, the high payoff in both options has a probability of one tenth and this probability increases by steps of one tenth as the number of the decision increases. Risk neutrality should lead subjects to cross-over from option A to option B at the fifth decision, while risk loving individuals are expected to switch earlier and risk averse individuals later.
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Tax Evasion and Social Information: an Experiment in Belgium, France and The Netherlands

Tax Evasion and Social Information: an Experiment in Belgium, France and The Netherlands

ment are not due to social learning but rather due to a self-justification of dishonest behavior. One should be careful with extrapolating our findings to the population of taxpayers for several reasons. We have explored only a small range of parameters in the audit policy with relatively high audit rates, and we have artificially formed the groups of peers. It is certainly perceivable that in the field social information has a stronger impact when individuals know who the reference group members are or when behavior is reinforced through feedback loops. Still, our findings point toward the importance of not ignoring the existence of peer effects when studying tax compliance behavior. This also holds for policies designed to deter tax evasion. In particular, our results suggest that disseminating information about the extent to which people comply with taxes may not encourage higher compliance; if it exerts an influence on compliance, this influence may rather be negative than not positive. Finally, a possible limitation of our study is that our subject pool consists of students with no or little experience in paying taxes, and behavior of students and taxpayers can differ (see notably Fonseca and Myles 2012 ).
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Who’ll stop lying under oath? Empirical evidence from tax evasion games

Who’ll stop lying under oath? Empirical evidence from tax evasion games

Keywords: Part-time Lying, honesty, oath, commitment, Tax evasion. JEL classification: C9 ; H26. ∗ We thank James Alm, Cécile Bazart, Todd Cherry, Yannick Gabuthy, Erich Kirchler, Stefano Palminteri, Drazen Prelec, Angela Sutan, Miriam Teschl, Claire Vandendriessche, Marie-Claire Villeval and participants at several seminars and conferences for their comments and the helpful discussions from which we benefited in the development of this work. We also thank Kene Boun My for his assistance in running the experiments. Jason Shogren thanks the University of Alaska-Anchorage for their support while working on this research. Stéphane Luchini thanks the Wissenschaftszentrum Berlin fur Sozialforschung (WZB) for their support while working on this research. Antoine Malézieux thanks the Tax Administration Research Centre (TARC) for their support while working on this research. The authors thank the Conseil Régional de Lorraine for its financial support.
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Detecting tax evasion: a co-evolutionary approach

Detecting tax evasion: a co-evolutionary approach

2014b ), providing as little information as possible and stalling reporting data. The auditors work with aggregated and dispersed tax data, e.g. on form 1065 (Schedule K-1) 1 many of which might be filed as separate paper attachments. In this paper we describe a methodology that can help detect strategies for reducing tax liability by offsetting real gains in one part of a portfolio by creating artificial capital losses elsewhere, specifically those that utilize the complicated partnership tax law in Subchapter K of the IRC. While there are other strategies for abusive tax avoidance that involve related party agreements, services pricing, or state and local tax (SALT) jurisdictional items, we consider partnership tax for this initial analysis. The tax schemes here consist of sequences of transactions between entities in ownership networks that, when taken individually, appear compliant. However, when all transactions are combined they have no other purpose than to illegally mitigate tax liability and can potentially be labeled as tax evasion. Propitiously, it is possible to disallow tax evasion by one of many anti-abuse doctrines, e.g. the ‘‘economic substance’’ doctrine, which specifies that transactions
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Tax Evasion: Cheating Rationally or Deciding Emotionally?

Tax Evasion: Cheating Rationally or Deciding Emotionally?

The players know that their reported income can be audited according to a certain cutoff audit scheme and that this audit will entail the payment of a fine if the reported income is less than the actual income. We have reinforced the experimental realism of the design not only by replicating the structure of income reporting, but also by using non-neutral terms in the instructions (see Appendix) and by introducing an endogenous audit rule. The probability of an audit is endogenous in that it depends on the median report in the group, and this is made common information. 9 If the reported income of a player is among the four highest reported incomes in the group, his audit probability is 35%. If his reported income is among the four lowest reported incomes in the group, his audit probability is 65%. If all subjects report the same amount, the audit probability is uniform and equal to 50%. The reason why low reported income players have a higher probability of being audited is because reporting low incomes signals to the tax authority, which knows the distribution of income that the individual might have underreported by a substantial amount. The tax authority has little to gain in auditing individuals who report a high income as auditing is costly. 10 Therefore, the subjects do not know their individual audit probability (for an early attempt to study the impact of uncertain audit probabilities on compliance, see Spicer and Thomas (1982)).
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Tax Evasion, Welfare Fraud, and "The Broken Windows" Effect: An Experiment in Belgium, France and the Netherlands

Tax Evasion, Welfare Fraud, and "The Broken Windows" Effect: An Experiment in Belgium, France and the Netherlands

L’archive ouverte pluridisciplinaire HAL, est destinée au dépôt et à la diffusion de documents scientifiques de niveau recherche, publiés ou non, émanant des établissements d’enseignemen[r]

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Tax-benefit revealed social preferences

Tax-benefit revealed social preferences

To our knowledge, this paper represents the first attempts to 'reveal' the implicit social welfare preferences by applying an 'optimal inverse' technique to direct taxation, within the framework of Mirrlees' optimal labor income tax model. A similar approach has been used in the field of indirect taxation by Ahmad and Stern (1984). They apply the optimal inverse method to the indirect taxation system in India and conclude that tax authorities are not Paretian in the sense that some agents have a negative marginal weight in the revealed social welfare function. They then derive a set of tax reforms that are Pareto improving over the status quo situation. In a more recent theoretical paper, Choné and Laroque (2005) use the optimum inverse within Mirrlees' optimal direct redistribution framework but focus on the distribution of individual abilities rather than the social welfare function. More precisely they show that there always exists a distribution of abilities - conditional on individual labor supply behavior - that makes an observed marginal tax rate schedule optimal with a Rawlsian welfare function. However, they do not apply empirically their inversion method so that it is difficult to know how 'reasonable' would be the 'revealed' distribution of abilities under the assumption of Rawlsian social welfare. Unlike Laroque and Choné (2005), the present paper inverts the optimal taxation model with respect to social welfare rather than the distribution of abilities and provides an empirical application of this method.
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Tax devaluation with endogenous margins

Tax devaluation with endogenous margins

In open economy, social VAT mimics monetary devaluation. The VAT base consists of total value of domestic consumption including imports, while payroll tax base is the wage bill. The dierence between both bases results in a competitiveness eect (relative rise of imported products, and gain on export competitiveness). Central issues in the analysis are (i) how the fall in production costs is reected in the producer prices, and (ii) how the increase in the VAT rate is reected in consumer prices. Consider the case of a price elasticity that decreases with demand (usually considered as the most likely case). The producer prices do not fall as much as the cost, as well as rms do not fully pass on the VAT increases in the margin. 2
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Tax Incentives: Issue and Evidence

Tax Incentives: Issue and Evidence

shuler (1988) notes that in 1984 almost half of all U.S. rms could not fully o set their tax credits. Dagenais et al. (1997) report that the B-index of tax incentives for the Canadian rms in their sample ranges from 0.5 to 1.8. A large part of this variation derives from ceilings on the use of tax incen- tives unique to each rm. For 20% of the observations on rms performing R&D, these expenditures could not be entirely expensed for lack of imme- diate taxable pro t. In only 11% of the observations, tax credits could not be entirely claimed in the year in which the R&D was performed. For 22% of the observations on R&D performers, tax credits for incremental research could not be claimed. But despite these ceilings, they compute that the ad- ditional R&D from a one percent increase in the federal R&D tax credit is 0.97 for all rms in the sample and 1.04 if only rms without ceilings are considered. The various measures introduced by the Canadian government to remove any obstacles to the use of tax incentives (carryback, carryforward, reimbursement) seem to achieve their goal. Provincial tax credits which are reimbursable, i.e. not subject to any ceiling, yield $1.09 in additional R&D per dollar of tax expenditure.
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Predominant role of Tax sumoylation in Tax-induced NF-kB activation in T cells

Predominant role of Tax sumoylation in Tax-induced NF-kB activation in T cells

Claudine Pique 1,2,3 From 15th International Conference on Human Retroviruses: HTLV and Related Viruses Leuven and Gembloux, Belgium. 5-8 June 2011 Tax is a powerful activator of the NF-kB pathway, a property that is required for HTLV-1-induced T cell immortalization. Tax activates the NF-kB pathway by acting both at cytoplasmic and nuclear levels. In the cytoplasm, Tax binds to and activates the IkB Kinase (IKK) complex while in the nucleus, Tax assembles tran- scriptional active nuclear bodies. Others and we have previously demonstrated that the cytoplasmic/nuclear partition and NF-kB activity of Tax critically depend on its post-translational modifications. NEMO binding and IKK activation in the cytoplasm depends on Tax ubiqui- tination while Tax SUMOylation facilitates Tax nuclear body formation. Based on these findings, the current view is thatTax ubiquitination and SUMOylation coop- erate to ensure optimal NF-kB activation by successively regulating the cytoplasmic and nuclear events. However, many questions remain regarding the individual proper- ties of ubiquitinated or SUMOylated Tax and how the intracellular trafficking of Tax is coordinated to NF-kB activation. To explore these issues, we took advantage of the isolation of new Tax mutants that are ubiquitinated but poorly SUMOylated. We found that lack of SUMOylation modifies neither Tax stability nor Tax ubiquitination. In addition, while absence of SUMOyla- tion prevents Tax nuclear body formation, this does not preclude Tax import into the nucleus. Finally, absence of SUMOylation reduces the NF-kB activity of Tax by around 70% in T cells. We are currently investigating the effect of fusion to SUMO isoforms on the activity of the mutants. Based on these new findings, we will pro-
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Tax devaluation with endogenous margins

Tax devaluation with endogenous margins

In open economy, social VAT mimics monetary devaluation. The VAT base consists of total value of domestic consumption including imports, while payroll tax base is the wage bill. The dierence between both bases results in a competitiveness eect (relative rise of imported products, and gain on export competitiveness). Central issues in the analysis are (i) how the fall in production costs is reected in the producer prices, and (ii) how the increase in the VAT rate is reected in consumer prices. Consider the case of a price elasticity that decreases with demand (usually considered as the most likely case). The producer prices do not fall as much as the cost, as well as rms do not fully pass on the VAT increases in the margin. 2
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The Challenge of Tax Reform and Expanding the Tax Base Geary Lecture - 2009

The Challenge of Tax Reform and Expanding the Tax Base Geary Lecture - 2009

When one thinks about base broadening versus raising tax rates, several key factors need to be borne in mind. The first is that higher rates create greater distortions in the economy. A touch stone of basic public finance theory is that tax-induced distortions rise as the tax rates rise - in fact they tend to rise about as quickly as the square of the tax rate. Consider a worker who supplies hours of work when the tax rate is 35 per cent – the top rate of tax in the U.S. currently. If this person's labour input is valued by the firm as $20 per hour, and if the firm pays that wage, the labourer will only receive $14 per hour. There is a gap between the value the market places on this worker's time, and the after-tax compensation that the worker receives for supplying labour. While the theoretical impact of such a tax on labour supply is ambiguous, and depends on competing income and substitution effects, most empirical work suggests that higher tax rates reduce labour supply, especially among secondary earners.
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Pursuit-Evasion Games and Zero-sum Two-person Differential Games

Pursuit-Evasion Games and Zero-sum Two-person Differential Games

4.1 Qualitative game In pursuit-evasion games, the main issue is to distinguish initial states, called cap- turable, for which a Pursuer’s strategy causing finite-time capture against any defense exists, from those, called safe, for which the Evader has a strategy guaranteeing escape against any defense. This is the topic of the qualitative game or game of kind (Isaacs). A theorem of the alternative is one which states that for a particular (class of) game(s), every initial state is either capturable or safe. Such theorems have been proved for classes of Pursuit-Evasion games covering essentially all cases of interest, under Isaacs condition (1) with L = 0. (Krasovskii [17], Cardaliaguet et al. [7, 9].)
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Why Tax International Athlete Migration? The 'Coubertobin' Tax in a Context of Financial Crisis

Why Tax International Athlete Migration? The 'Coubertobin' Tax in a Context of Financial Crisis

If a < a3 , the surcharge s3 = 1000% lump sum tax. When it comes to regulating international athlete migration, there are at least two other options than the Coubertobin tax. A first option is the one adopted in the 2001 FIFA rules. First, teenager transfers are prohibited. The problem is that prohibition usually creates very strong incentives to either find some excuse that triggers an exception status or develop an international black market for teenage players, which already exists. Second, FIFA rules establish training costs compensation for players transferred over twenty-three with a 5% solidarity mechanism which distributes compensation on a pro rata basis among all nursery clubs involved in a player‟s training from the age of twelve to twenty-three. In a nutshell, the comparison between FIFA rules and Coubertobin tax (details in Andreff, 2001 & 2002; Gerrard, 2002) comes out with FIFA rules being more profitable over twenty-three, much less below eighteen. A main limitation of FIFA rules, comparatively to the tax, is that they are restricted to football while Coubertobin tax targets all sports. On the other hand, FIFA rules have been adopted while the tax is still in prospect. In some sense, FIFA rules are a step in the right direction, but it is not in tackling the less desirable effects of international athlete migration.
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Tax Rulings Under State Aid Scrutiny

Tax Rulings Under State Aid Scrutiny

6 Curricula Vitae of Speakers and Chair Max Lienemeyer Head of Sector, Task Force Tax Planning Practices, DG Competition, European Commission, Brussels Max studied Law and International Relations at the J W Goethe-University of Frankfurt, Germany and Keele University in Keele, Staffordshire, England. After graduating with a law degree in 1993 in Frankfurt, he obtained a LL.M in International Legal Co-operation from the Vrije Universiteit Brussel and a PhD from the law faculty of the University of Frankfurt for his thesis on the financial constitution of the European Union. Max started his professional career as a lawyer, practising European competition and trade law in Brussels. He is working for the European Commission since 2003, where his first assignment was to assess rescue and restructuring aid cases in the manufacturing industries, especially in the steel sector. He subsequently moved to the antitrust unit dealing with financial services. From 2009 to 2013 he has been a deputy Head of Unit in the European Commission’s financial crisis task force dealing with State aid cases in the banking sector. He is now heading a task force concerning tax planning practices which is responsible for the control of State aid setting the frame for aggressive tax planning structures by multinationals. Max has published numerous articles in the field of European law, in particular State aid law.
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The signaling effect of tax policy

The signaling effect of tax policy

1 Introduction Environmental and health policy issues often involve commodities combining ex- ternal effects (pollution, costs to the healthcare system) and individual effects (future costs or benefits related to own consumption). Once reasonable effort to inform the public has been undertaken by the authorities, the perception of individual effects may remain fuzzy. This paper investigates the triple task of tax policy (raising public funds, correcting external effects, and signaling missing information to individuals) and particularly the policy-maker’s conflict between budgetary and informational objectives.
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Gale's fixed tax for exchanging houses

Gale's fixed tax for exchanging houses

JEL Classification: C71, C78, D63, D71, D78. Key Words: Fixed Tax, Exchanges, Top Trading. 1 Introduction A large literature on house exchange problems has been developed since the pioneering work of Shapley and Scarf (1974). These problems contain a finite set of agents, each of whom is endowed with a single house. Agents are willing to take part in cyclical exchanges if they are better off by such trades. The key assumption in the model is that monetary transactions are not allowed. In spite of its simplicity, house exchange models have been demonstrated to be powerful in many real-life applications. Maybe the best-known examples are the design of kidney exchange programs (Roth et al., 2004) and school choice mechanisms (Abdulkadiro˘ glu and S¨ onmez, 2003). However, even if it is natural to abstain from monetary transfers in some settings, it is very unnatural in others. In a real-life house exchange problem, for example, it is not unlikely that local authorities tax house exchanges. Even in the absence of such tax, it is not unlikely that monetary transfers are needed to compensate for differences in
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Environmental tax in a green market

Environmental tax in a green market

In this paper, we focus on a specific environmental policy - an emission tax – and its capacity to encourage firms to improve the environmental quality of their product, when competing in a green market. We assume that consumers differ in their ecological consciousness and, thus, in their willingness-to-pay for environmental quality. Polluting firms choose their abatement effort and the associated environmental quality offered on the market as well as the price of their products. Social welfare is not only determined by the consumers’ surplus and the firms’ profits but also by the environmental damage caused by the manufacturing of the firms’ products, i.e. the negative externalities of pollution.
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