Behavioral Economics

Topi Miettinen (Hanken)

  • The role of reporting institutions and image motivation in tax evasion and incidence (with Kaisa Kotakorpi, Satu Metsälampi and Tuomas Nurminen

  • Abstract: We study effects of tax reporting mechanisms on evasion and incidence in experimental double auction markets where counterfactual reporting and market outcomes are observed after convergence. We compare markets without taxes to cases where (i) taxes are automatically levied, (ii) taxes are based on seller re-ports and fines paid in case low probability audit discovers evasion, or (iii) there is reporting by both the buyers and the sellers, and the audit probability is in-creasing in the gap between the units reported by the seller and her customers. The latter mimics the so called third-party reporting in tax enforcement. We find that about half the sellers fully evade when only sellers report, but that80% report truthfully under third-party reporting. Moreover, in the treatment with evasion, prices do not fully reflect the lower costs of evaders. Therefore, tax incidence does not conform with predictions of the standard model, but is instead heavily distorted towards the buyers, unlike in other treatments where the standard model predicts incidence quite well. Pricing, incidence and re-porting patterns in all treatments can be explained by a model of lying with image concerns based on Gneezy et al. (2018)

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Topi Miettinen

Hanken School of Economics

topi.miettinen at hanken.fi