Conventional models of taxpayer behavior largely overlook the ethical aspect of the income-
reporting problem, and are generally unable to explain observed compliance rates unless
risk aversion is severely exaggerated. As a correction, this paper modifies the standard
model to include a moral preference parameter. Aggregate time series data on self-
employed taxpayers are used to calibrate the model and impute the implicit monetary value
of ethical conduct. The results suggest that tax evasion induces remorse-based disutility …