NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Value of Honesty: Empirical Estimates from the Case of the Missing Children

Sara LaLumia, James M. Sallee

NBER Working Paper No. 17247
Issued in July 2011
NBER Program(s):   PE

How much are people willing to forego to be honest, to follow the rules? When people do break the rules, what can standard data sources tell us about their behavior? Standard economic models of crime typically assume that individuals are indifferent to dishonesty, so that they will cheat or lie as long as the expected pecuniary benefits exceed the expected costs of being caught and punished. We investigate this presumption by studying the response to a change in tax reporting rules that made it much more difficult for taxpayers to evade taxes by inappropriately claiming additional dependents. The policy reform induced a substantial reduction in the number of dependents claimed, which indicates that many filers had been cheating before the reform. Yet, the number of filers who availed themselves of this evasion opportunity is dwarfed by the number of filers who passed up substantial tax savings by not claiming extra dependents. By declining the opportunity to cheat, these taxpayers reveal information about their willingness to pay to be honest. We present a novel method for inferring the characteristics of taxpayers in the absence of audit data. Our analysis suggests both that this willingness to pay to be honest is large on average and that it varies significantly across the population of taxpayers.

download in pdf format
   (702 K)

email paper

This paper is available as PDF (702 K) or via email.

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w17247

Published: Sara LaLumia & James Sallee, 2013. "The value of honesty: empirical estimates from the case of the missing children," International Tax and Public Finance, Springer, vol. 20(2), pages 192-224, April. citation courtesy of

Users who downloaded this paper also downloaded these:
Manoli and Weber w17320 Nonparametric Evidence on the Effects of Financial Incentives on Retirement Decisions
Kleven, Knudsen, Kreiner, Pedersen, and Saez w15769 Unwilling or Unable to Cheat? Evidence from a Randomized Tax Audit Experiment in Denmark
Kaplow w17214 An Optimal Tax System
Dale and Krueger w17159 Estimating the Return to College Selectivity over the Career Using Administrative Earnings Data
Ebenstein, Zhang, McMillan, and Chen w17245 Chemical Fertilizer and Migration in China
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us