Tax morale, tax system and the median voter (Q2915556)

The paper investigates on a simple model the impact of tax morale on the value of the personal income tax rate. The rate is being formed by some voting process, and its volume is defined by the median voter. Each of the voters maximizes his/her utility function by choosing a labor supply and a level of underreported income when the wage rate and the tax rate are given. A utility function consists of three terms. In addition to a usual consumption utility (a linear function of the controlled variables) and a labor disutility (a quadratic function), the author introduces a quadratic moral disutility function of tax evasion. The proposed complex utility function is investigated analytically, and the obtained qualitative results are numerically illustrated.