Anti-Tax Revolutions

This paper extends the traditional individual tax evasion model to take account of the effect of the expected behavior of other taxpayers on individual compliance decisions. The extension yields insights on two puzzles: 'antitax revolutions' characterized by a sudden increase in noncompliance despite unchanged fundamentals, and cross-country differences in compliance despite similar tax and auditing systems. The extension also suggests the possibility of multiple compliance equilibria. If indeed present, policies aimed at changing taxpayer expectations regarding societal compliance may be more cost-effective in raising compliance than increasing audits and penalties. Copyright 1996 by WWZ and Helbing & Lichtenhahn Verlag AG