Ricerc@Sapienza

The term “social polarization” is used to describe a society that is composed of different socially identifiable and separate groups. Social polarization is a key feature of many modern societies and is potentially linked to conflicts, alienation, and societal tensions. When concerning income, polarization (or, more precisely, bipolarization) describes the so‐called disappearance‐of‐the‐middle‐class phenomenon, that is, the tendency of the income distribution to become U‐shaped, with the population shifting toward the two extremes of the income range, emptying the central part of it.

This paper studies the effect of income inequality on tax evasion. To discuss the topic, we present a simple model, based on Benabou and Tirole [6], that incorporates incentives for tax compliance such as punishment and fines, intrinsic motivation and social norms. Since we consider a regressive system of incentives to comply, income inequality increases the value of tax evasion although overall propensity to comply is unaffected. In this framework, we consider the hypothesis that social norms are group specific as in the case of social segregation or status related networks.