No. 59: The epidemiology of tax avoidance narratives

Abstract

This study investigates the contagious nature of tax avoidance by examining how narratives affect tax avoiding behavior. We adapt the idea of narrative economics indicating that individuals‘ actions are stimulated by stories that spread within a society. We employ two types of infection models to theoretically investigate how tax avoidance schemes spread over time and vanish eventually consistent with patterns known from epidemiology. We find that general tax avoidance can persist even if its expected outcome is negative, while specific tax avoidance schemes might vanish even though their expected outcome is positive. We find empirical support for the predicted dissemination of narratives related to both general and specific tax avoidance schemes in google n-grams. Finally, we show that dissemination of specific tax avoidance schemes is attenuated by anti-narratives in (social) media. Our findings help to understand how tax avoidance spreads, under what conditions anti-avoidance measures can effectively curb tax avoidance and point towards the crucial role of transparency of enhanced enforcement by visible narratives.