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Tax Compliance Social Norms and Institutional Quality: An Evolutionary Theory of Public Good Provision

Author

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  • Panayiotis Nicolaides

Abstract

This paper presents an evolutionary theory of public good provision. The framework analyses the relationship between endogenous tax compliance norms, formed by the interactions of rationally-bounded individuals in a network, and the quality of institutions that collect taxes and distribute the public good to the individuals. Conditions for the level of public good utility are derived and illustrated on the "Public Good Provision Hypersurface"; a two-dimensional manifold that describes the relationship between norms, institutional quality and public good provision. I show that the effectiveness of the government to collect taxes increases the determinacy of public good provision but does not ensure its maximisation, which depends also on the level of wasteful government expenditure. If the government is ineffective in performing audits, the welfare from public good provision becomes subject to social norms. Lastly, a condition is derived at which social norms of tax compliance can act as a substitute for enforcement and can result in the maximisation of public good utility.

Suggested Citation

  • Panayiotis Nicolaides, 2014. "Tax Compliance Social Norms and Institutional Quality: An Evolutionary Theory of Public Good Provision," Taxation Papers 46, Directorate General Taxation and Customs Union, European Commission.
    • Handle: RePEc:tax:taxpap:0046
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    File URL: https://ec.europa.eu/taxation_customs/sites/taxation/files/resources/documents/taxation/gen_info/economic_analysis/tax_papers/taxation_paper_46.pdf
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    Citations

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    Cited by:

    1. L. S. Di Mauro & A. Pluchino & A. E. Biondo, 2018. "A Game of Tax Evasion: evidences from an agent-based model," Papers 1809.08146, arXiv.org.
    2. A. E. Biondo & G. Burgio & A. Pluchino & D. Puglisi, 2022. "Taxation and evasion: a dynamic model," Journal of Evolutionary Economics, Springer, vol. 32(3), pages 797-826, July.
    3. Letizia S. Di Mauro & Alessandro Pluchino & Alessio E. Biondo, 2019. "Tax evasion as a contagion game: evidences from an agent-based model," The European Physical Journal B: Condensed Matter and Complex Systems, Springer;EDP Sciences, vol. 92(5), pages 1-12, May.

    More about this item

    Keywords

    Taxation; Tax compliance; Social norms Public goods; Government waste;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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