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Community Tax Evasion Models: A Stochastic Dominance Test

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  • Néstor Gandelman

Abstract

In a multi community environment local authorities compete for tax base. When monitoring is imperfect, agents may decide not to pay in their community (evasion), and save the tax difference. The agent decision on where to pay taxes is based on the probability of getting caught, the fine he eventually will have to pay and the time cost of paying in a neighbor community. First, we prove that if the focus of the agents' decision is the probability of getting caught and the fine, only the richest people evade. If instead, the key ingredient is the time cost of evading, only the poorest cheat. Second, we test the evasion pattern on the Automobile Registration System in Uruguay using two stochastic dominance tests. The evidence favors in this case the hypothesis that richer people are the evaders.

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  • Néstor Gandelman, 2005. "Community Tax Evasion Models: A Stochastic Dominance Test," Journal of Applied Economics, Taylor & Francis Journals, vol. 8(2), pages 279-297, November.
    • Handle: RePEc:taf:recsxx:v:8:y:2005:i:2:p:279-297
    DOI: 10.1080/15140326.2005.12040629
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    More about this item

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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