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Tax avoidance, household formation and inequality


Qari,  Salmai
Public Economics, MPI for Tax Law and Public Finance, Max Planck Society;

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Qari, S. (2012). Tax avoidance, household formation and inequality. Berlin: Freie Universität.

This thesis analyzes the impact of nonpecuniary factors like morale, home attachment or emotions on economic decisions. The first part of this thesis studies tax avoidance and tax compliance. Specifically, chapter 2 examines the link between the nonpecuniary factors “patriotism” or “home attachment” and individual tax compliance. The basic assumption is inspired by Andreoni (1990) and essentially means that individuals feel “a warm glow of giving” when they voluntarily pay their taxes and that this warm glow is higher for more patriotic citizens. Building on these results, chapter 3 moves to a cross-country setting and analyzes the consequences of patriotism on tax rates in a framework where individuals may migrate to a foreign country in order to avoid high tax liabilities. The second part of this thesis (starting with chapter 4) deals with the economics of household formation. The pattern of how single individuals are matched and may subsequently enter a marital union seems to be a prime example for the presence of emotional payoffs. Yet, the literature on household formation and family economics in general has for a long time put its emphasis only on outcome measures like labor supply or inequality. Consequently, emotional payoffs are an underresearched topic. Chapter 4 analyzes a marriage market in a dynamic model with search frictions, where agents are not only characterized by a vertical trait like productivity, but also derive utility from emotional congruence or consumption complementarities. Chapter 5 checks the dynamics of life satisfaction of individuals who enter a marital union. In particular it is tested if being married is associated with a long-lasting increase in happiness. Chapter 6 considers the dynamics of inequality and presents a model to decompose cross-sectional inequality into permanent and transitory inequality. This thesis mainly focuses on the decision problem of the individual and the resulting equilibrium patterns. The microeconomic models that are either working in the background or explicitly stated are standard rational choice models. The analysis is positive and does not intend to give explicit policy recommendations. However, a thorough positive analysis is a necessary condition for making informed decisions. Most chapters start with a theory model or provide some theoretical background and then move to an empirical test of the hypotheses. The employed empirical methods are mostly standard microeconometric methods. As in the theoretical segments of the thesis, the empirical analysis is purely positive. Moreover, although a number of specifications try to address some endogeneity issues, the econometric analysis focuses on exploring and describing patterns in the data rather than estimating causal effects. The reasons for this are twofold: First, most of the available datasets are cross-sectional and offer only a limited number of controls. Second, the nature of the topic often prevents the application of a standard treatment-evaluation framework. For example, whether or not individuals are patriotic depends on the definition and is not comparable to, for instance, evaluating the effect of participation in education programs on wages. The thesis therefore focuses on the robustness of empirical patterns with respect to different measurement methods.