We present an experimental study on the wasted resources associated with tax evasion. This waste arises from taxpayers and tax authorities investing costly effort in the concealment and detection of tax evasion. We show that these socially inefficient efforts - as well as the frequency of tax...

Using surveys of the Czech Republic taken in 2000, 2002, 2004, and 2006 we measure how the percentage of tax evaders evolved from 1995 until 2006. We find that at first evasion rose, leveled off, and then fell along a quadratic path, suggesting the existence of what we call an evasional Kuznets...

A 2002 survey of 1089 Czechs and 501 Slovaks, as well as a more limited survey of Hungary, and Poland, indicates that an individual may evade taxes in part if he believes he is receiving substandard government services. We suggest that an individual’s evaluation of the quality of government...

The two most prominent deadweight losses in public finance are the triangle loss from taxation and the rectangle loss from rent-seeking. This paper suggests that a third type of deadweight loss can rival these two in size and deserves detailed exploration. In the presence of the underground...

Tax evasion analysis is typically based on an expected utility theory (EUT) framework. However, this leads to several qualitative and quantitative puzzles. Given actual probabilities of audit and penalty rates the return on evasion ranges from 91-98 percent. So why don’t most of us evade?...

In this paper we focus on the effects of investigations on tax compliance. In a very general model we explain the direct and indirect effects of investigations and analyse taxpayers’ response to an increase in the probability of audit when tax compliance is a social norm. We define the...

Under a constitution, which establishes a state under the rule of law, violations of unconstitutional laws are not punished. We argue that this is the true strength of the constitution. In our model, citizens decide on whether or not to evade taxes. For this they have to infer their probability...

Why does the government not defect from the constitution? This article focuses on the dynamic restraints the government faces under the rule of law: violations against unconstitutional laws are not punished under the constitution. If a violating government cannot commit itself never to reinstall...

The paper demonstrates how survey methods and retrospective questions can be put to effective use in the study of shadow-economy dynamics; specifically, the evolution of tax evasion in the Czech Republic. The authors measure the average individual's transition between the shadow and official...

There is a growing interest in morale as a potential substitute for sanctions, encouraged by exerimental evidence that people's morale affect their economic decisions. I show that while morale may be a substitute for sanctions for each citizen, it is not a substitute in the market. In a model...