DP7554 Political Support and Tax Compliance: A Social Interaction Approach

Author(s): Chaim Fershtman, Vilen Lipatov
Publication Date: November 2009
Keyword(s): political opinion, social interaction, tax evasion
JEL(s): H26, H50, P16
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7554

People may express their political opinion by adopting different measures of civil disobedience. Tax compliance is an example of an economic decision that may be affected by anti-goverment sentiment. We consider a model in which political opinion as well as tax compliance decisions are both formed as part of a social interaction process in which individuals interact, exchange ideas and observe behavior. Tax compliance is affected by the level of government support and political opinion may be affected by government's auditing policy. The government's role is to set a social spending program which is viewed differently by rich and poor individuals. The paper focuses on the interdependence between tax compliance, government's social policies and political support, embedding this interdependence in a dynamic social interaction process.