Matthew D. Rablen

Mortality and immortality: The Nobel Prize as an experiment into the effect of status upon longevity

It has been known for centuries that the rich and famous have longer lives than the poor and ordinary. Causality, however, remains trenchantly debated. The ideal experiment would be one in which extra status could somehow be dropped upon a sub-sample of individuals while those in a control group of comparable individuals received none. This paper attempts to formulate a test in that spirit. It collects 19th-century birth data on science Nobel Prize winners. Correcting for potential biases, we estimate that winning the Prize, compared to merely being nominated, is associated with between 1 and 2 years of extra longevity.

Relativity, Rank and the Utility of Income*

Relative utility has become an important concept in several disjoint areas of economics. I present a cardinal model of income utility based on the supposition that agents care about their rank in the income distribution and that utility is subject to adaptation over time. Utility levels correspond to the Leyden Individual Welfare Function while utility differences yield a version of the prospect theory value function, thereby providing a new and shared derivation of each. I offer an explanation of some long-standing paradoxes in the wellbeing literature and an insight into the links between relative comparisons and loss aversion.

Tax Evasion and Exchange Equity: A Reference-Dependent Approach:

The standard portfolio model of tax evasion with a public good produces the perverse conclusion that when taxpayers perceive the public good to be under-/overprovided, an increase in the tax rate increases/decreases evasion. The author treats taxpayers as thinking in terms of gains and losses relative to an endogenous reference level, which reflects perceived exchange equity between the value of taxes paid and the value of public goods supplied. With these alternative behavioral assumptions, the author overturns the aforementioned result in a direction consistent with the empirical evidence. The author also finds a role for relative income in determining individual responses to a change in the marginal rate of tax.

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

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.

The promotion of local wellbeing: A primer for policymakers

There is growing interest among policymakers in the promotion of wellbeing as an objective of public policy. In particular, local authorities have been given powers to undertake action to promote wellbeing in their area. Recent advances in the academic literature on wellbeing are giving rise to an increasingly detailed picture of the factors that determine people’s subjective wellbeing (how they think and feel about their lives). However, the concept of subjective wellbeing is poorly understood within local government and much of the evidence base is extremely recent. I therefore review the literature on the definition, measurement, and determinants of wellbeing, and discuss some of its implications for local public policy.

Risk attitudes and informal employment in a developing economy

We model an urban labour market in a developing economy, incorporating workers’ risk attitudes. Trade-offs between risk aversion and ability determine worker allocation across formal and informal wage employment, and voluntary and involuntary self employment. Greater risk of informal wage non-payment can raise or lower informal wage employment, depending on the source of risk. Informal wage employment can be reduced by increasing detection efforts or by strengthening contract enforcement for informal wage payment. As the average ability of workers rises, informal wage employment first rises, then falls. Greater demand for formal production may lead to more involuntary self employment.JEL ClassificationO17, J23, D81

Income Tax Avoidance and Evasion

We characterize optimal individual tax evasion and avoidance when taxpayers “narrow bracket” the joint avoidance/evasion decision by exhausting all gainful methods for legal avoidance before choosing whether or not also to evade illegally. We find that (1) evasion is an increasing function of the audit probability when the latter is low enough, yet tax avoidance is always decreasing in the probability of audit; (2) an analogous finding to the so-called Yitzhaki puzzle for evasion also holds for tax avoidance—an increase in the tax rate decreases the level of avoided income and the level of avoided tax; and (3) that, holding constant the expected return to evasion, it is not always the case that the combined loss of reported income due to avoidance and evasion can be stemmed by increasing the fine rate and decreasing the audit probability.

Tax avoidance and optimal income tax enforcement

We examine the optimal auditing problem of a tax authority when taxpayers can choose both to evade and avoid. For a convex penalty function, the incentive-compatibility constraints may bind for the richest taxpayer and at a positive level of both evasion and avoidance. The audit function is non-increasing in reported income, and is higher for progressive tax functions than for regressive tax functions. Higher marginal tax rates increase the incentives for non-compliance, overturning the well-known Yitzhaki paradox.