Abstract
Those engaging in tax non-compliance have been conventionally explained as rational economic actors partaking when the benefits outweigh the costs, and thus public administrations have sought to enforce compliance using a deterrence approach which increases the risk of detection and penalties. However, many have been found to not engage in tax non-compliance when the benefits exceed the costs. The result has been the emergence of a voluntary compliance approach viewing taxpayers as social actors who engage in tax non-compliance when there is a lack of vertical trust (in governments) and horizontal trust (in others). Using a probit regression analysis of data from special Eurobarometer surveys conducted in 2007, 2013 and 2019, the finding is that although the likelihood of participating in tax non-compliance is largely not associated with the level of penalties and risk of detection, it is significantly associated with the level of vertical and horizontal trust, with participation in tax non-compliance increasing with lower vertical and horizontal trust. The implications for theory and for how public administrations tackle tax non-compliance are then discussed.
Highlights
Tax non-compliance is a prominent feature of the European economy
Some 11.6% of all labour input in the private sector is estimated to be undeclared (Williams et al 2017) and the undeclared economy is estimated as equivalent to 15.8% of Gross Domestic Product (GDP) (Williams and Schneider 2016). This has negative impacts on workers, businesses, consumers and the wider society. Those working in the undeclared economy suffer poorer working conditions (Williams and Horodnic 2019b), purchasers of goods and services from the undeclared economy lack insurance cover and legal recourse (OECD 2017), formal enterprises suffer unfair competition from enterprises operating in the undeclared economy (OECD 2017; World Bank 2019) and enterprises operating undeclared lack legal protection and the ability to access capital and grow (Loayza 2018)
The result is that the topic of tax non-compliance has risen up policy agendas in supra-national institutions (ILO 2015; European Commission 2016; OECD 2017; World Bank 2019) and national governments in Europe as well as beyond (ILO 2018, 2020; Williams 2019)
Summary
Some 11.6% of all labour input in the private sector is estimated to be undeclared (Williams et al 2017) and the undeclared economy is estimated as equivalent to 15.8% of GDP (Williams and Schneider 2016). This has negative impacts on workers, businesses, consumers and the wider society. The result is that the topic of tax non-compliance has risen up policy agendas in supra-national institutions (ILO 2015; European Commission 2016; OECD 2017; World Bank 2019) and national governments in Europe as well as beyond (ILO 2018, 2020; Williams 2019)
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