Fight Tax Evasion Research Articles

The twin deficits hypothesis in Tanzania: Exploring the effect of budget deficits on trade deficits

The Twin Deficit Theory has been researched extensively across multiple economic environments. Still, its relevance and real-world consequences can vary dramatically based on the particular economic condition of a country. Therefore, this study empirically analyzes the impact of the budget deficit on the trade deficit in Tanzania. Quarterly time series data is collected from 2005 to 2023. Autoregressive Distributed Lag (ARDL) Model estimation with a bound cointegration test establishes the short- and long-term relationship. The results show that the budget deficit increases the trade deficit in the long run. This implies that the theory exists in Tanzania. The results highlight the critical need for the country to reduce its budget deficit by improving revenue collection, expanding the tax base, fighting tax evasion, and improving expenditure efficiency for better public resource management.

The distributional impact of fiscal measures to compensate for consumer inflation in Greece in 2022

This paper analyses the distributional implications of consumer inflation in Greece and of the fiscal measures adopted to cushion its adverse impact on households in 2022. The analysis employs the tax-benefit microsimulation model for the European Union (EUROMOD) to study how inflation, income support measures, as well as measures aimed at containing prices affected households’ purchasing power and welfare across the income distribution. The study confirms that the purchasing power of lower-income households was more severely affected by the 2022 inflation surge than that of higher-income households, resulting in the so-called inflation gap. The unequal impact of inflation was further magnified by the high shares of consumption in the income of the poorer, resulting in a welfare loss differential of 9.2 percentage points between the bottom and the top income decile. The adverse distributional impact of the inflationary shock was largely offset by government policies, with a welfare loss of only 2.9% remaining for the population as a whole. Fiscal measures were shown to close the inflation gap and mitigated the welfare loss differential between the poor and the rich to just 0.7 percentage points. Price measures were dominant vis-à-vis their income counterparts in compensating for welfare losses across the income distribution and, most interestingly, had a significant progressive impact largely driven by the electricity subsidy, as the support provided was inversely related to consumption. However, given that they were not as well-targeted to low-income households, they were relatively cost-inefficient when compared with income measures. Nonetheless, the efficiency advantage of income measures may be severely undermined in the presence of extensive tax evasion, which points not only to the need for a careful design of targeted measures, but also to complementarities with structural reforms fighting tax evasion.

Tax evasion and tax amnesties in regional taxation

Italian governments have frequently chosen tax amnesties or concessions, with the twofold purpose of creating new budget resources and cancelling irredeemable debts. Such course of action constitutes a “shortcut” policy in terms of fighting tax evasion, which is a matter less popular among voters and more demanding in terms of efficiency and political continuity. This paper investigates the effects of the 2016–2019 tax concession, bringing empirical evidence based on the car tax paid to the Tuscany Region. The car tax is the main source of regional fiscal autonomy in Italy. In terms of revenue recovery, we found a net amount of only 1.6% of the unpaid taxes accrued. A difference-in-difference (DiD) analysis of the effects on compliance showed that those who took advantage of the tax amnesty in the past, when cheating again, were more likely to default on their tax debts, as compared to those who did not join the amnesty program. Therefore, our analysis provides original evidence of a very low budget recovery and confirms the results of literature according to which tax amnesties impact negatively on taxpayers’ behaviour.

Exchange of Information in Tax Matters

Globalisation and cross-border movement of persons and capital have placed new challenges before national tax systems as well as international taxation. Over the past 20 years there has been an unprecedented development of exchange of information, a previously ancillary instrument which has developed into a widely accepted global means of fighting tax evasion. Exchange of information has evolved from an instrument of limited scope used for the implementation of tax treaty provisions to a sophisticated system of automatic information exchange encompassing a vast majority of countries, including infamous tax havens. The notions of tax secrecy and tax transparency have undergone a re-evaluation process, resulting in new global paradigms directed at unveiling previously secret transactions. Banking secrecy has been abolished even in countries with a strong tradition thereof. As some time has passed since the introduction of the latest global standard of the automatic exchange of information, this paper reflects on the most important aspects of exchange of information, regulated by tax treaties: the OECD’s CRS, EU’s DAC, and FATCA. Following a theoretical introduction, which provides a historical and comparative overview of information exchange instruments, the paper presents the practical results of the implementation. Findings of the evaluation of the instrument conducted by key international stakeholders are accompanied by available statistical information, depicting to what extent it has been helpful in preventing tax evasion in Croatia and Slovenia and in recovering lost public revenues. The paper results in identifying the shortcomings of national applications, based on best global practices and statistical data as well as providing tax authorities with recommendations for the improvement of exchanging information. As the system is still in a rather early stage of implementation, the paper presents the current tax administration involvement in exchanging information, which will enable further evaluations in future stages of implementation of the instrument.

Influence of Inheritance Tax on the Size of Shadow Economy and the Volume of Tax Evasion

Abstract The objective of the paper is to investigate the influence of the inheritance tax on the amount of tax evasion in different countries. The inheritance tax is among the most unpopular taxes. It is assumed, that unpopular taxes, such as the inheritance tax, have a measurable influence on the amount of tax evasion. Countries that levy inheritance taxes and countries which don’t levy inheritance taxes are compared in their success in fighting the shadow economy over a longer period (1991 – 2017). For that, data from Medina and Schneider from 2019 about the development of the shadow economy and from the OECD about the inheritance tax revenue is used. The approach is, to find dependencies between the inheritance tax revenue and the size of the shadow economy. The results show, that countries which abolished the inheritance tax, are not anymore that successful in fighting tax evasion than they were before. There is also evidence, that countries with a relatively high inheritance tax revenue are not able to fight tax evasion to the same extent, as countries that levy relatively low inheritance taxes. Therefore, in terms of reducing tax evasion, it is not recommended to abolish already introduced inheritance taxes, but rather to continue levying a moderate inheritance tax.

Parliament

This overview highlights the Parliament’s (i) Resolution on national vetoes to undermine the global tax deal; (ii) Committee recommendation to tax cryptoassets and use of blockchain to fight tax evasion

Cash and the Hidden Economy: Experimental Evidence on Fighting Tax Evasion in Small Business Transactions

Increasing the tax compliance of self-employed business owners—particularly of trade-specific service providers such as those involved in construction and repair work—remains an ongoing challenge for tax authorities. From a compliance point of view, cash transactions are particularly problematic when services are paid for on the spot, as these exchanges are difficult to audit. We present experimental evidence testing ten different policy strategies rooted in the enforcement, service, and trust/social paradigms, in a setting that allows payment either via a transaction that directly reports income for tax collection purposes or in cash, where taxes are only collected on reported income. Our sample includes both a typical subject pool of students, as used in most previous studies, and non-students who are active within service industries characterised by the opportunity to engage in cash transactions. While our comparative results show that, for both student and non-student participants, interventions that rely on greater enforcement by the tax authority have the greatest effect on compliance in our cash economy setting, treatments involving cooperative elements may be similarly effective in enhancing tax compliance. Given their effectiveness, cooperative approaches should therefore be considered for addition to the policy mix if implemented at relatively low costs, making both carrot and stick approaches promising to increase compliance in an environment where cash-for-service payments offer a common benefit for small businesses and their customers from implicit collusion that enables tax evasion.

The Upcoming ATAD 3 Substance Rules: Overview and First Challenges

With the issuance of the third draft Anti-Tax Avoidance Directive, the European Commission continues its path in developing a grid of measures aimed at fighting tax evasion and avoidance at a European level. These new measures focus more specifically on entities lacking substance to prevent them from being entitled to improper tax benefits. However, the authors note that the first release of this set of rules is also lacking in precision regarding key concepts that are prerequisite to understand the exact scope of the entities targeted but also the tax consequences that would apply to entities falling within such scope. In this article, the authors provide an overview of the envisaged rules as currently drafted, together with a first set of practical challenges that could derive form their interpretation.

ANALYSIS AND MEASUREMENT OF TAX EVASION FACTORS USING QUESTIONNAIRE-EXAMPLE FROM BOSNIA AND HERZEGOVINA

Analysis and measurement of tax evasion is a very important issue primarily for the tax administration. The purpose of this article is first to show how to analyze tax evasion via a questionnaire. In Bosnia and Herzegovina, as well as in the EU countries and adder countries in the region and the world, ensuring fighting tax evasion has never been important than it is today. Tax evasion can’t observe in isolation from the rest of society. Maximising the revenue collected by promoting fighting tax evasion is the main responsibility of a tax administration. According to current knowledge, it is not possible to precisely quantify the range of individual factors on the very occurrence of tax evasion and the analysis and measurement of tax evasion factors does not have an easy path and is not an easy task. There are numerous studies on the influence of certain factors of tax evasion. This study highlighted the importance of factors that determine tax evasion. The objectives of this article are to give how to analyse and measure tax evasion. Due to the financial and economic crisis, the issue of tax evasion in order to improve the state of public finances. The answer to the question is very complex for several reasons. Factors of tax evasion change dynamically over time due to economic conditions, business innovation, e-commerce development, economic crisis and today COVID pandemic, political stability, resource availability, competitive situation, quality and capabilities of state institutions, tax legislation, etc. A survey of respondents’ attitudes towards tax evasion was conducted in order to analyze and measure tax evasion factors. The primary research of the respondents has been conducted, in order to analyze and measure the factors of tax evasion. The study adopted a quantitative survey design, convenience sampling technique, and questionnaire as a data collection instrument. We found that the introduction of appropriate penalties can increase tax discipline and improve compliance with and enforcement of tax laws. Such solutions should achieve a preventive effect, and consequently a repressive one. In the end, it is necessary to raise the level of political security, because without raising and increasing political security within the state and fight against tax evasion is limited. A key point is that require legislative change to maximise the suggestions above. Starting from the presented in the paper, ie analysis and measurement of tax evasion factors, a general conclusion can be made that priority and special emphasis should be given to these factors mentioned in the research, through which measures and activities can improve the situation faster and more efficiently.Furthermore, in line accordance with economic trends, this paper can contribute to the literature by presenting the results and shows that the questionnaire can be used to recognize the observed phenomenon. Finally, it is worth recognising a need for new research questions regarding the analysis and measurement of tax evasion.

The Effects of Fiscal Effort in Tunisia: An Evidence from the ARDL Bound Testing Approach

The purpose of this paper is to examine the various structural determinants of revenue and tax effort in Tunisia. We used on the empirical study an ARDL model to estimate the dynamic equation of fiscal potential and its structural and non-structural determinants covering the period of 1996–2017 in Tunisia. The empirical results show that before 2010, Tunisia fully exploited its fiscal potential, and the tax effort was above unity. After 2010 this trend was reversed. Despite the increase in the tax burden, Tunisia is below potential. The results showed that Tunisia is facing dramatic difficulties in mobilizing more tax revenue with this same taxpayer base. As a result, it is called upon to orient reform actions towards two aspects: broadening the taxpayer base to guarantee more tax fairness and adopting an awareness and motivation strategy aimed at greater tax compliance. Tunisia should adopt reforms that aim to eliminate the flat-rate regime and put in place advantages and procedures to facilitate and motivate the transition from informal to formal. Finally, it would be wise to further regulate cash payments and ensure the application of the legal rules governing the matter. In order to optimize the allocation of budgetary resources and ease the pressure on public finances, it would be appropriate, even with a delay in relation to the legislation to fight tax evasion and fraud by improving the human and material resources made available to the tax administration and consolidating its digitalization efforts.

A Stackelberg game for the Italian tax evasion problem

In this paper, we consider the problem of tax evasion, which occurs whenever an individual or business ignores tax laws. Fighting tax evasion is the main task of the Economic and Financial Military Police, which annually performs fiscal controls to track down and prosecute evaders at national level. Due to limited financial resources, the tax inspector is unable to audit the population entirely. In this article, we propose a model to assist the Italian tax inspector (Guardia di Finanza, G.d.F.) in allocating its budget among different business clusters, via a controller-controlled Stackelberg game. The G.d.F. is seen as the leader, while potential evaders are segmented into classes according to their business sizes, as set by the Italian regulatory framework. Numerical results on the real Italian case for fiscal year 2015 are provided. Insights on the optimal number of controls the inspector will have to perform among different business clusters are discussed and compared to the strategy implemented by the G.d.F.

PORESKI JAZ KAO POSLEDICA NENAPLAĆENIH PORESKIH OBAVEZA

Tax evasion and grey economy are present in all countries. It’s es-timated that grey economy in developed EU countries is at around 10-15% of GDP, while it amounts to over 30% of GDP in Serbia. Therefore the subject of this paper is determining basic goals of Serbia’s tax policy, i.e. combating grey economy that complicates efficient resource allocation and slows down economic development, because economic subjects that are prone to tax evasion represent disloyal competi-tion to economic subjects that do business legally. In order to fight tax evasion, or-ganization and work of tax administration are of special importance.

EFFECT OF TAX REVENUE ON ECONOMIC DEVELOPMENT: EVIDENCE FROM NIGERIA

The main objective of this study is to ascertain the effect of Tax Revenue on Economic Development with a focus on Nigeria. The specific objectives were to determine; the effect of Companies’ Income Tax on Per Capita Income, Petroleum Profit Tax on Per Capita Incomeof Nigeria from 2000-2019. This study employed the use of time series data and Ex-post facto research design was adopted. Secondary data were sourced from Central Bank of Nigeria (CBN), Statistical Bulletin, Federal Inland Revenue Service (FIRS), World Bank Statistical Bulletin and Annual Abstract of Statistics from the National Bureau of Statistics (NBS). Inferential statistics of the hypotheses were carried out with the aid of E-views 10 statistical software using Ordinary Least Square (OLS) regression analysis, Granger Causality test. The study found that companies’ income tax has a significant positive effect on per capita income of Nigeria; petroleum profit tax has a significant positive effect on per capita income of Nigeria; It was recommended inter alia that federal government of Nigeria should underpin public financial management reforms, strengthen supervisory and transparency practices, improve tax administration, and fight tax evasion.

Determinants of tax evasion in Greece: Econometric analysis of co-integration and causality, variance decomposition and impulse response analysis

The purpose of this paper is tο examine the causality relationships and the degree of interdependence, between the level of tax evasion in Greece and a set of deterministic factors, using annual data for the period 1995 - 2018. The research methodology employed includes testing for stationarity with the Augmented Dickey-Fuller (ADF) test, cointegration test according to Engle-Granger approach, estimation Error Correction Models (ECM) to investigate the short-run and long-run relationships, variance decomposition and impulse response analysis. The results indicate a significant interdependence, which is an important tool for pursuing a targeted and effective policy to fight tax evasion. More specifically, the survey showed that the level of tax rates, the level of unemployment, the Rule of Laws index, the level of GDP, the level of non-performing loans, the government efficiency, the corruption perception index and the level of final consumption expenditure, affect the size of tax evasion in Greece, significantly. In addition, the results of variance decomposition and impulse response analysis, support the above findings, providing a quantitative representation of the causality relationships between the factors under investigation and tax evasion.

Cash and the Hidden Economy: Laboratory and Artefactual Field Experimental Evidence on Fighting Tax Evasion in Small Business Transactions

Increasing the tax compliance of self-employed business owners (particularly of trade- specific service providers) remains an ongoing challenge for tax authorities. From a compliance point of view, cash transactions are particularly problematic when services are paid for on the spot, as such exchanges are difficult to audit. As a novelty we present experimental evidence testing 11 different policy strategies in a setting that allows for cash transactions. Our sample includes both students and non-students active in service industries characterised by the opportunity to engage in cash transactions. While our results offer a positive outlook for the interventions reporting a significant effect, they particularly speak to the potential of moral suasion to increase compliance, as it may be implemented at relatively low cost. However, a carrot (offering support in tax declarations) as well as a stick (increasing the threat of audits) approach may be promising for increased compliance, especially where there is an evasion opportunity in cash-for-service payments between small businesses and individual customers who may share a common benefit from tax evasion. A stick approach is particularly efficient for those inclined to use cash transactions.

Transformation of the private offshore wealth management service industry in the emerging economy

Dollarisation in emerging economies of Southern Africa like Zambia and Zimbabwe, led High-Income Earning Individuals (HIEI) to invest offshore as an investment diversification strategy. The turbulent past experiences influenced African HIEI behavior in relation to their wealth management approaches. HIEI started looking for ways to protect its financial assets against future political and economic volatilities. The purpose of this study was to equip academics and the wider commercial fraternity with practical and strategic knowledge of the emerging markets’ offshore wealth management services industry. This would assist emerging markets to regulate HIEI markets, boost capital flow, fight tax evasion to allow banks to assist, help governments protect pensions, promote transparency in investments and avoid negative effects of dollarisation. Data were collected from 81 participants including HIEIs with offshore investments, those individuals without, financial advisors, and the Securities Exchange Commission (the industry regulator). The study used a qualitative approach in its methodology using questionnaires, interviews, and a computer-aided system for data analysis. We found that HIEI feels their wealth is under attack and looks towards offshore investing as a refuge. We identified the desperate urge of African HIEIs to secure their wealth as the main influence driving the offshore investing phenomenon

The ghost of institutions past: History as an obstacle to fighting tax evasion?

Can a history of evasion affect tax compliance after a major institutional reform? We address this question in a novel laboratory experiment varying the quality of past and present institutions. We find that past institutions continue to exert considerable influence on individuals’ expectations about others’ compliance even after a major, common-knowledge institutional change. Consequently, we observe low compliance in good-quality institutions when there is a history of evasion, but high compliance when there is no such history. These findings suggest that history should not be ignored as it is in traditional models of compliance: the higher evasion has been historically, the stronger incentives may need to be to overcome the “ghost of institutions past”. We show that a society-wide poll in which individuals express their attitudes toward compliance can help break the link with the past.

Effects of Foreign Direct Investment and Quality of Informal Institution on the Size of the Shadow Economy: Application to Vietnam

Tax is the main revenue of Government, so fighting tax evasion and sustainable growth have been the primary macroeconomic goals being pursued by every developing country, Vietnam included. The existence and development of the shadow economic sector are synonymous with the national budget losing out. In Vietnam, foreign direct investment projects do not promote economic growth and is also a sector that gives way to tax evasion.The purpose of this study is to investigate the impact of foreign direct investment, the quality of the informal institution on the size of the shadow economy in Vietnam, during the period 1991-2015. By applying the Autoregressive Distributed Lag approach and Toda and Yamamoto test, we found evidence to conclude that the quality of the informal institution harms the size of the shadow economy. The results of the causality test show that there is a unidirectional causality running from the shadow economy and the quality of the informal institution to foreign direct investment attraction in Vietnam. Political solutions need to be implemented carefully to counter the harmful effects of the shadow economy. Policymakers should adopt several economic policies to improve the ‘human capital’ and drive the shadow economy into the formal economy.

Regulatory Capacity of Corporate Registries in the European Union. Survey Results

This paper discusses the role that the capacity of corporate registries plays in fighting tax evasion and related crimes. It reviews the current state of research and data availability around the capacity of company registration systems. It further presents results from a new survey sent out by the Tax Justice Network to corporate registries of European member states, enhanced with data from the International Business Registers report and the Financial Secrecy Index. It provides data indicators that show potential abusive practices, compares the information that registries record about the natural persons associated with limited companies and shows data about the material and human resources of corporate registries.

Disentangling Tax Evasion from Inefficiency in Firms Tax Declaration: An Integrated Approach

In this article we present a new methodology to support fiscal monitoring by the Italian Revenue Agency (IRA) with the aim of improving current taxpayers fiscal compliance and fighting tax evasion within small and medium enterprises. In fact, given the methodology behind the Sector Studies (Studi di Settore - SdS) system, there is room for firms to implement tax evasion strategies by simply adjusting revenues (and costs) toward an estimated average threshold (known ex-ante), the so called presumptive revenues, and achieving the fiscal congruity status. By estimating a production function through stochastic frontier analysis we avoid estimating the average threshold know ex-ante and can combine information on firm economic efficiency with those on fiscal congruity, thus being able to disentangle underreporting of revenues due to potential firm tax evasion behaviours from underreporting due to firm inefficiencies. We apply this framework to two samples of Italian firms belonging to two Sector Studies. Our results confirm the potentiality of the approach, although more work is needed before moving to a large scale implementation for policy purposes.