Behavioral Economics and Tax Evasion

Abstract

Most tax policies that are based on tax-payer decision-making are drawn upon classical economic models. Studies, however, indicate that decision-making models which lack psycho-social bases and are merely designed based on economic parameters, cannot fully explain developments and evolution of actions by decision-makers. Therefore, a large body of literature has been formed about analysis of tax-paying decisions based on behavioral economics. In the present study, a brief overview of the theoretical bases of behavioral economics, as well as both theoretical and practical research conducted in this field, are going to be presented. Unfortunately, relevant studies have been indicative of increasingly widespread of tax evasion in our country despite various measures taken in this regard. Considering factors related to behavioral economics that are influencing tax evasion and using policy-making capacities stated in this approach may apparently help Iran reduce tax evasion and improve the effectiveness of its tax system.

Keywords

• behavioral economics
• tax evasion
• tax policy