Both buyers and sellers of goods and services may bene.t from letting their economic transactions go unrecorded for tax purposes. The supplier reduces his tax burden by underreporting income, whereas the consumer gains from buying a non-taxed lower-priced product. The distributional implications...

Arguably, for many citizens the perceived expected disutility from sanctions is smaller than the monetary gain from tax evasion. Nevertheless most people pay their taxes most of the time. In a lab experiment, we show that the willingness to pay taxes even absent enforcement is indeed pronounced....

We estimate the extent of income underreporting among working households, using data from an income survey linked with individual tax records for Estonia. Income underreporting is inferred from consumption propensities, following and extending the method by Pissarides andWeber (1989). Our...