BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
Tax Evasion in a Transition from Socialism to Capitalism: The Psychology of the Social Contract
Abstract: In a common assumption of the economics of tax evasion,
extending beyond the basic Allingham-Sandmo model, the choice of a taxpayer
to evade taxes depends upon the perceived fairness of the tax system. The
purpose of the paper is to provide a psychological foundation for this
assumption by drawing on Hayek’s theory of human behavior as a process of
rule following. According to the main hypothesis, taxpayers are more
compliant with tax laws to which they can in principle give their full
consent. A social contract as a basis of tax policy may provide a potent
means to combat tax evasion particularly in transition economies that have
inherited a deep mistrust of the government from their socialist past.
Keywords: tax evasion; social contract; economics of psychology; transition economies; Austrian economics; (follow links to similar papers)
39 pages, July 6, 2000
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