Abstract
This paper explores the long-run relationship among tax evasion, corruption and different stages of entrepreneurial activities for 31 OECD countries based on a series of annual data during the period of 2000–2010. The analysis was conducted using Dynamic Ordinary Least Squares (DOLS) and Fully Modified OLS (FMOLS) approaches. The results clearly suggest the existence of a statistically significant long-run relationship between Tax evasion, corruption and entrepreneurial activities. In addition, the findings reveal that (1) corruption has a negative impact on all three stages of entrepreneurial motivation, total entrepreneurship activity and established entrepreneurship, and (2) using the DOLS and FMOLS estimates, tax evasion has a negative effect on the TEA and established entrepreneurship, while it has a positive impact on the entrepreneurial motivation. Consequently, if entrepreneurship is one of the main drivers of economic growth, policymakers and the government should simultaneously adopt policies to combat corruption and reduce institutional weaknesses when trying to reduce tax evasion.
Highlights
Entrepreneurship as one of the main drivers of economic growth increases the productivity and employment (Cullen & Gordon, 2007)
The findings reveal that (1) corruption has a negative impact on all three stages of entrepreneurial motivation, total entrepreneurship activity and established entrepreneurship, and (2) using the Dynamic Ordinary Least Squares (DOLS) and Fully Modified OLS (FMOLS) estimates, tax evasion has a negative effect on the Total early-stage Entrepreneurial Activity (TEA) and established entrepreneurship, while it has a positive impact on the entrepreneurial motivation
Tax evasion increases the amount of resources accumulated by entrepreneurs, but on the other hand, with the reduction of tax revenues collected by the government, the level of public services will be reduced; it will lead to negative consequences on economic growth
Summary
Entrepreneurship as one of the main drivers of economic growth increases the productivity and employment (Cullen & Gordon, 2007). The existence of tax evasion enhances the environment of corruption These two phenomena have a negative impact on entrepreneurship and economic growth and discourage the private sector from innovating and boosting uncertainty in the market. Anokhin and Schulze (2009) believe that better control of corruption may lead to higher levels of entrepreneurship None of these articles addresses the underlying issues in relation to the fact that entrepreneurs may affect the level of corruption and tax evasion. Considering the importance of tax evasion and corruption in the formation of entrepreneurial activities, the fundamental question that the present study seeks to answer is how far tax evasion and corruption can affect the development of entrepreneurial activities, the paper try to answer three questions: (1) How does average and marginal tax rates affect entrepreneurship in OECD countries.
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