TY  - RPRT
        AU  - Piolatto, Amedeo
AU  - Rablen, Matthew D.
        TI  - Prospect Theory and Tax Evasion: A Reconsideration of the Yitzhaki Puzzle
        PY  - 2013/Nov/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 7760
        UR  - https://www.iza.org/publications/dp7760
        AB  - The standard expected utility model of tax evasion predicts that evasion is decreasing in the marginal tax rate (the Yitzhaki puzzle). The existing literature disagrees on whether prospect theory overturns the puzzle. We disentangle four distinct elements of prospect theory and find loss aversion and probability weighting to be redundant in respect of the puzzle. Prospect theory fails to reverse the puzzle for various classes of endogenous specification of the reference level. These classes include, as special cases, the most common specifications in the literature. New specifications of the reference level are needed, we conclude.
        KW  - prospect theory
KW  - tax evasion
KW  - Yitzhaki puzzle
KW  - stigma
KW  - diminishing sensitivity
KW  - reference dependence
KW  - endogenous audit probability
KW  - endogenous reference level
        ER  -