Sector-Specific Characteristics of Tax Crime in Russia

A P Kireenko,D Yu Fedotov,E N Nevzorova

doi:10.15826/jtr.2019.5.3.071

Abstract

The article discusses the hypothesis that fiscal crime has some sector-specific characteristics, which tend to become more pronounced as new technologies emerge and develop. These characteristics should be taken into account when devising policies targeted at fighting tax evasion. To test this hypothesis, we analyzed quantitative (the level of economic crime in Russia in general and for different types of economic activity) and qualitative characteristics of crime (structure, dynamics and nature of crime). We also conducted analysis of the correlation between these indicators and the structure of costs and financial performance of organizations. The research relies on crime statistics, which reflect the scale of tax evasion better than financial statistics (since the latter are influenced by a large number of factors and are subject to significant change even within one year). Pearson’s and Spearman’s correlation coefficients were used for verification. Sectors of economy were ranked in descending order according to the corresponding economic crime rates and loss to gross value added in the sector. The findings show that unlike the cases of tax evasion, the number of economic crimes does not closely correlate with the structure of costs. Most tax crimes and corporate tax evasion in particular are recorded in sectors with lower labour costs, social security contributions and other prime costs but with higher depreciation of fixed assets (capital intensive industries). Thus, the results of this study contradict the findings of international scholars that shadow economy is larger in highest paying industries. It is shown that the sectors with higher losses are characterized by higher crime rates, that is, the loss in many cases is connected to tax evasion and related economic crime. The research has brought to light certain sector-specific characteristics of tax evasion, which means that these characteristics should be taken into account in governance and policy-making as well as in further research on this topic.

Highlights

In recent years, the economics of crime have shifted the analysis from Becker’s economic crime framework, which is based on the relationship between crime and punishment, to a more “flexible” approach in which many demographic and socioeconomic variables play different roles in explaining crime
We investigate the impact of tax evasion on certain criminal activities in the Italian provinces during the 2006-2010 period
We have shown that the economic crimes here considered are strongly influenced by tax evasion

Summary

Introduction

The economics of crime have shifted the analysis from Becker’s economic crime framework, which is based on the relationship between crime and punishment, to a more “flexible” approach in which many demographic and socioeconomic variables play different roles in explaining crime In this literature, crime has been linked to unemployment, the age and gender composition of the population, education, income, employment activity, etc. We consider three types of crime that are related, in particular, to economic determinants: i) property crime (including robbery, theft and car theft), ii) fraud and iii) usury These are crimes that have a strong impact on the economic and social structure of the affected areas and that are typically linked in the literature to socio-economic and demographic determinants; the literature has generally ignored these crimes’ association with the underground economy and (as a result) tax evasion

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Discussion

Conclusion