An investigation in the theory of voluntary provision of public goods and income tax evasion under the hypothesis of ethical behaviour on the part of economic agents
In this work we discuss a number of issues in the theory of voluntary provision of public goods and income tax evasion under the assumption that individuals are ruled by a notion of Kantian morality. Our justification for imposing such an assumption is that models incorporating the traditional assumption of rational egoism are unable to explain the many real world examples of successful private provision of public goods, of which compliance to tax rules can be taken as an example. In the first part of this work, after having reviewed the literature on private provision of public goods and justified our alternative approach, we introduce and formalize the notion of Kantian behaviour. We investigate efficiency of private provision of public goods under Kantian behaviour and we also compare Kantian provision with alternative models of public goods supply. Precise conditions on the structure of individual preferences which would ensure efficiency of private provision of a public good under Kantian, behaviour are derived. It is also shown that while Kantian supply of a public good is in general, still characterized by, underprovision it tends to be more efficient than public good provision under a democratic system as represented by the Median voter. theorem. Finally, using the notion of Lindahl equilibrium, a different way of assessing under/over provision of a public good under Kantian behaviour is derived. In the second part of this work, building upon the analysis on Kantian behaviour developed in the previous sections, we address the phenomenon of income tax evasion as an example of voluntary (non) provision of a public good. We present a model where the amount of tax that a taxpayer wishes to evade is determined on the basis of his perception of the fairness of his fiscal treatment, with respect to both governmental supply of public goods and the perceived behaviour of the other taxpayers. The coercive powers of the state, as well as the taxpayer's attitude toward risk, determine only the extent, to which this desired level of tax evasion is reached in practice. It is shown that this approach is able to produce implications for the relationship between the characteristics of public expenditure, the tax rates and tax evasion which are more consistent with both intuition, and empirical evidence than the results of the conventional model of income tax evasion. Furthermore, it also allows one to address other important questions such as the effect of government X-inefficiency on tax evasion.