Tax evasion on a social network

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4 Citations (Scopus)

Abstract

We relate tax evasion behavior to a substantial literature on social comparison in judgements. Taxpayers engage in tax evasion as a means to boost their expected consumption relative to others in their social network. The unique Nash equilibrium of the model relates optimal evasion to a (Bonacich) measure of network centrality: more central taxpayers evade more. Given that tax authorities are now investing heavily in big-data tools that aim to construct social networks, we investigate the value of acquiring network information. We do this using networks that allow for celebrity taxpayers, whose consumption is seen widely, and who are systematically of higher wealth. We show that there are pronounced returns to the initial acquisition of network information, especially in the presence of celebrity taxpayers.
Original languageEnglish
Pages (from-to)79-91
Number of pages13
JournalJOURNAL OF ECONOMIC BEHAVIOR & ORGANIZATION
Volume169
DOIs
Publication statusPublished - 2020

Keywords

  • Network centrality
  • Optimal auditing
  • Relative consumption
  • Social comparison
  • Social networks
  • Tax evasion

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