Social networks and occupational choice: The endogenous formation of attitudes and beliefs about tax compliance |
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Institution: | 1. University of Reading, Whiteknights P.O. Box 217, Reading, Berkshire RG66AH, United Kingdom;2. University of Exeter, Streatham Court, Exeter, Devon EX44PU, United Kingdom;3. Institute for Fiscal Studies, 7 Ridgmount St., London WC1E 7AE, United Kingdom;4. Indiana University, 107 S. Indiana Ave., Bloomington, IN 47405, United States;5. Brunel University, Kingston Lane, Uxbridge, Middlesex UB8 3PH, United Kingdom |
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Abstract: | The paper analyses the emergence of group-specific attitudes and beliefs about tax compliance when individuals interact in a social network. It develops a model in which taxpayers possess a range of individual characteristics – including attitude to risk, potential for success in self-employment, and the weight attached to the social custom for honesty – and make an occupational choice based on these characteristics. Occupations differ in the possibility for evading tax. The social network determines which taxpayers are linked, and information about auditing and compliance is transmitted at meetings between linked taxpayers. Using agent-based simulations, the analysis demonstrates how attitudes and beliefs endogenously emerge that differ across sub-groups of the population. Compliance behaviour is different across occupational groups, and this is reinforced by the development of group-specific attitudes and beliefs. Taxpayers self-select into occupations according to the degree of risk aversion, the subjective probability of audit is sustained above the objective probability, and the weight attached to the social custom differs across occupations. These factors combine to lead to compliance levels that differ across occupations. |
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Keywords: | Tax evasion Attitudes Beliefs Endogeneity Social network Agent-based modelling Bomb-crater effect |
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