The Behavior of Tax Evaders
Tax evasion in this paper manifests itself in two forms, underreporting of ordinary income and working in the hidden economy. Based on a specification of a utility function as well as on a tax function it is found, somewhat surprisingly, that an increase in the marginal tax rate in Norway reduces hours of work in the hidden economy. Underreporting of ordinary income increases as expected. The effect on total tax evasion is indeterminate. However, employing survey data and maximizing a likelihood function, an increase in the marginal tax rate turns out to have the expected positive effect both upon the supply of black labor and on under-reporting of ordinary income. This latter approach also revealed that tax evasion is a more common phenomenon among men than women, and that for both sexes hours of work in the hidden economy peak in the mid-thirties.
KeywordsLabor Market Utility Function Shadow Economy Relative Risk Aversion Absolute Risk Aversion
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