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Article

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Accepted version

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2017-04

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Please use this identifier to cite or link to this item: https://hdl.handle.net/2445/118700

Prospect theory and tax evasion: a reconsideration of the Yitzhaki puzzle

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https://doi.org/10.1007/s11238-016-9581-9

Abstract

The standard expected utility (EUT) model of tax evasion predicts that evasion is decreasing in the marginal tax rate (the Yitzhaki puzzle). Recent literature shows cases in which incorporating prospect theory (PT) does and does not overturn the Puzzle. In a general environment that nests both PT and EUT preferences, we provide a detailed study of how the elements of PT affect the Puzzle. PT does not always reverse the Puzzle, hence we give and interpret conditions for when it does and does not. When allowing for stigma and/or variable audit probability, PT reverses the Puzzle in the same way and with the same limitations as does EUT, if equally augmented.

Subject

Frau fiscal, Ingressos fiscals, Poder adquisitiu, Auditoria fiscal

Subject (English)

Tax evasion, Internal revenue, Purchasing power, Tax auditing

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Articles publicats en revistes (Economia)

Citation

PIOLATTO, Amedeo and RABLEN, Matthew D. Prospect theory and tax evasion: a reconsideration of the Yitzhaki puzzle. Theory and Decision. 2017. Vol. 82, num. 4, pags. 543-565. ISSN 0040-5833. [consulted: 10 of August of 2026]. Available at: https://hdl.handle.net/2445/118700

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