Archive for July 12th, 2016

Revisiting the tax compliance problem using prospect theory

July 12, 2016

R. Kavita Rao and Suranjali Tandon of NIPFP have this interesting paper.

Should one file or not file a tax? What are the behavioral implications?

The paper presents a model for tax compliance based on prospect theory wherein an individual makes the decision whether to file, and declare a certain amount of income, or to not file based on a set of policy parameters as well as his/her preferences. The paper poses the question- at what incomes would individuals choose to file a return and answers the same using a model based on prospect theory. Further, simulations are presented to illustrate the impact of changes in tax rates, penalty and audit probability on the individual’s preference to file. The results from the simulation show that for different values of policy parameters there exists crossover income at which individuals would choose to file a return. Given all else, at the exemption threshold of 0.1 million, individuals would choose to file a return at incomes greater than or equal to 0.6 million.


One would like to also read on an experiment verifying the model..

Ben Bernanke is one of the most dangerous persons walking the planet….

July 12, 2016

David Stockman has a hard hitting piece on central banking community with special brickbats for Ben Bernanke.


The silent role of India’s credit rating agencies in the bad loan crisis

July 12, 2016

Praveen Chakravarty a Senior Fellow at IDFC Institute, has this ouch piece on the topic (HT: Ajay Shah Blog).

He says with all the mess of NPAs etc in Indian economy, what were credit rating agencies doing all this while?


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