TAX EVASION AND ORDERS OF RISK-AVERSION

The classic Allingham and Sandmo's (Journal of Public Economics, 1 (19 72) 323-338) portfolio choice approach to income tax evasion has been increasingly criticised because it requires an 'excess' degree of risk aversion to explain the observed rate of tax compliance. In this pape r we argue that there may not necessarily be 'excess risk aversion'; a nd that the evidence can be explained by the distinction between order s of risk aversion, as defined by Segal and Spivak (Journal of Economi c Theory, 51 (1990) 111-125) and considered in regard to the same prob lem of anomalous 'excess risk aversion' in financial and insurance mar kets. (C) 1998 Elsevier Science S.A.