The co-evolution of tax evasion, social capital and policy responses: a theoretical approach

The co-evolution of tax evasion, social capital and policy responses: a theoretical approach The dynamic model presented in this paper intends to account for the evidence, which appears to be particularly significant for Italy, of the incidence of tax evasion in a certain region being negatively correlated with the level of social capital existing in that region. Besides including social capital among the determinants of tax evasion, we extend the model so as to incorporate a mechanism whereby the existing volume of opportunistic behavior—which is proxied by the level of tax evasion—has negative effects on the formation of new social capital, thus helping to explain how regional differences in the endowment of social capital and in the incidence of tax evasion co-evolve and why they tend to be highly persistent. The model seeks also to capture the fact that in a democracy the political determination necessary to effectively repress tax evasion depends on the voters’ propensity toward the phenomenon. Hence, one should expect that–in areas where a relatively large (small) number of citizens are tax cheaters—the consensus in favor of tough policies against tax evasion tends to be weak (strong) and short (long) lasting. Consistently with this intuition, the model shows that regions where social capital is relatively low and tax evasion is relatively high can do better in the long run (i.e., they can reach a steady state characterized by a higher level of social capital and a lower level of tax evasion) when tax-enforcement policies are determined at the national level rather than at the regional level. The opposite holds for regions where social capital is relatively high and tax evasion is relatively low. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Review of Economics Springer Journals

The co-evolution of tax evasion, social capital and policy responses: a theoretical approach

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Publisher
Springer Berlin Heidelberg
Copyright
Copyright © 2018 by Springer-Verlag GmbH Germany, part of Springer Nature
Subject
Economics; Political Economy/Economic Policy; Economic Theory/Quantitative Economics/Mathematical Methods; Social Policy; History of Economic Thought/Methodology; Law and Economics; Quality of Life Research
ISSN
1865-1704
eISSN
1863-4613
D.O.I.
10.1007/s12232-018-0301-3
Publisher site
See Article on Publisher Site

Abstract

The dynamic model presented in this paper intends to account for the evidence, which appears to be particularly significant for Italy, of the incidence of tax evasion in a certain region being negatively correlated with the level of social capital existing in that region. Besides including social capital among the determinants of tax evasion, we extend the model so as to incorporate a mechanism whereby the existing volume of opportunistic behavior—which is proxied by the level of tax evasion—has negative effects on the formation of new social capital, thus helping to explain how regional differences in the endowment of social capital and in the incidence of tax evasion co-evolve and why they tend to be highly persistent. The model seeks also to capture the fact that in a democracy the political determination necessary to effectively repress tax evasion depends on the voters’ propensity toward the phenomenon. Hence, one should expect that–in areas where a relatively large (small) number of citizens are tax cheaters—the consensus in favor of tough policies against tax evasion tends to be weak (strong) and short (long) lasting. Consistently with this intuition, the model shows that regions where social capital is relatively low and tax evasion is relatively high can do better in the long run (i.e., they can reach a steady state characterized by a higher level of social capital and a lower level of tax evasion) when tax-enforcement policies are determined at the national level rather than at the regional level. The opposite holds for regions where social capital is relatively high and tax evasion is relatively low.

Journal

International Review of EconomicsSpringer Journals

Published: Jun 4, 2018

References

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