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Anti-Tax Revolutions and Symbolic Prosecutions

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  • Holger C. Wolf

Abstract

We extend the traditional tax evasion model to take account of the interaction between individual compliance decisions and perceived detection probabilities. The generalization provides a rationale for "anti-tax revolutions" characterized by a sudden shift of a significant fraction of the tax paying citizenry from compliance to tax evasion with unchanged fundamentals and monitoring rules. We establish, with an application to hyperinflation, the possibility of multiple compliance equilibria with lock-in effects. Finally, we demonstrate the potential cost effectiveness of "symbolic prosecution" as an equilibrium shifting device in preference to permanent changes the monitoring process.

Suggested Citation

  • Holger C. Wolf, 1993. "Anti-Tax Revolutions and Symbolic Prosecutions," NBER Working Papers 4337, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:4337
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    References listed on IDEAS

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    1. Reinganum, Jennifer F. & Wilde, Louis L., 1985. "Income tax compliance in a principal-agent framework," Journal of Public Economics, Elsevier, vol. 26(1), pages 1-18, February.
    2. Schlicht, Ekkehart, . "The Shadow Economy and Morals: A Note," Chapters in Economics,, University of Munich, Department of Economics.
    3. Murray C. Kemp & Yew‐Kwang Ng, 1979. "The Importance of Being Honest," The Economic Record, The Economic Society of Australia, vol. 55(1), pages 41-46, March.
    4. Polinsky, Mitchell & Shavell, Steven, 1979. "The Optimal Tradeoff between the Probability and Magnitude of Fines," American Economic Review, American Economic Association, vol. 69(5), pages 880-891, December.
    5. Srinivasan, T. N., 1973. "Tax evasion: A model," Journal of Public Economics, Elsevier, vol. 2(4), pages 339-346.
    6. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
    7. repec:bla:ecorec:v:55:y:1979:i:148:p:41-46 is not listed on IDEAS
    8. Vito Tanzi, 1977. "Inflation, Lags in Collection, and the Real Value of Tax Revenue (L'inflation, les retards de recouvrement et la valeur réelle des recettes fiscales) (Inflación, desfases en la recaudación y valor ," IMF Staff Papers, Palgrave Macmillan, vol. 24(1), pages 154-167, March.
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    Cited by:

    1. Eduardo Engel & James R. Hines Jr., 1998. "Understanding Tax Evasion Dynamics," Documentos de Trabajo 47, Centro de Economía Aplicada, Universidad de Chile.
    2. Besley, Timothy & Preston, Ian & Ridge, Michael, 1997. "Fiscal anarchy in the UK: Modelling poll tax noncompliance," Journal of Public Economics, Elsevier, vol. 64(2), pages 137-152, May.

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    More about this item

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory

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