Prospect Theory and Tax Evasion: A Reconsideration of the Yitzhaki Puzzle


The standard expected utility (EUT) model of tax evasion predicts that evasion is decreasing in the marginal tax rate (the Yitzhaki puzzle). Recent literature shows cases in which incorporating prospect theory (PT) does and does not overturn the Puzzle. In a general environment that nests both PT and EUT preferences, we provide a detailed study of how the… (More)


2 Figures and Tables

Slides referencing similar topics