Tax Morale, Leviathan and the Political Process: A Theoretical Approach

presented at the 2002 annual conference of the Royal Economic Society, March 25-27 at Warwick, UK and at the 2002 meeting of the European Public Choice Society, April 4-7 at Belgirate, Italy. (available upon request).#### It is proposed that a more accurate predicition of tax evasion activity than in the standard portfolio-choice model can be derived even for risk-neutral individuals, if psychological cost are considered. Contrary to earlier models integrating psychological cost, however, we systematically derive these cost by assuming a relationship between cognitive dissonance, taxpayer satisfaction with government policy, and the amount of taxes evaded. It is shown that this approach to modelling tax evasion can bridge a gap to the literature from economic psychology on the same topic, by accounting for several influences that traditionally play a role there, but are neglected in the portfolio-choice model.