We model the optimal intertemporal decision of an agent who chooses tax evasion and consumption, over an infinite lifetime horizon, where consumption is driven by habits. We find that: (i) tax evaders reduce consumption in the early stages of habit accumulation and increase it ove rtime; (ii) habit formation has a dampening effect on tax evasion; (iii) neglecting tax evasion may lead to habit overestimation; (iv) the effect of the tax rate on tax evasion is ambiguous; and (v) heavy fines are more efficient than frequent controls in reducing tax evasion.

Dynamic Tax Evasion with Habit Formation in Consumption

bernasconi, Michele;Levaggi, Rosella;Menoncin, Francesco
2020-01-01

Abstract

We model the optimal intertemporal decision of an agent who chooses tax evasion and consumption, over an infinite lifetime horizon, where consumption is driven by habits. We find that: (i) tax evaders reduce consumption in the early stages of habit accumulation and increase it ove rtime; (ii) habit formation has a dampening effect on tax evasion; (iii) neglecting tax evasion may lead to habit overestimation; (iv) the effect of the tax rate on tax evasion is ambiguous; and (v) heavy fines are more efficient than frequent controls in reducing tax evasion.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11379/514626
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