Shadow Economy and Tax Evasion

A special issue of Economies (ISSN 2227-7099). This special issue belongs to the section "Economic Development".

Deadline for manuscript submissions: 30 June 2024 | Viewed by 16230

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Guest Editor
Department of Economics, e-Campus University, Via Isimbardi 10, I-22060 Novedrate, Italy
Interests: housing economics; labour economics; tax evasion; economic growth
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Special Issue Information

Dear Colleagues,

Shadow economy and tax evasion are widely studied in economics and behavioural sciences. Still, determinants of the tax behaviour of individuals and firms (including psychological aspects, social and cultural norms and customs) are not fully understood. Additionally, questions related to the evolution, operation and design of formal institutions capable of effectively counteracting these two widespread and related phenomena remain (substantially) open. Finally, fiscal policies fighting against shadow economy and tax evasion could (at least in the short term and in some countries) have adverse effects on economic growth and unemployment.

This Special Issue therefore welcomes papers that contribute to improving our understanding of shadow economy and tax evasion. The papers can be theoretical or empirical, and the approach can be based on case study, policy, comparative or institutional analysis. We welcome contributions from all disciplines and schools of thought in the social sciences and the humanities.

Dr. Gaetano Lisi
Guest Editor

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Keywords

  • shadow economy (from the micro and/or macro level)
  • economic growth and informal economy
  • shadow economy and unemployment
  • shadow economy and illegal activities
  • formal and informal institutions
  • tax behaviour (from the consumer and/or firm point of view)
  • tax evasion
  • tax avoidance
  • tax systems
  • optimal fiscal policy
  • social and cultural norms, customs and psychological aspects of tax behaviour

Published Papers (7 papers)

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Research

25 pages, 396 KiB  
Article
Cryptocurrencies, Tax Ignorance and Tax Noncompliance in Direct Taxation: Spanish Empirical Evidence
by Álvaro Hernández Sánchez, Beatriz María Sastre-Hernández, Javier Jorge-Vazquez and Sergio Luis Náñez Alonso
Economies 2024, 12(3), 62; https://doi.org/10.3390/economies12030062 - 4 Mar 2024
Viewed by 1578
Abstract
This article highlights the complexity of taxation surrounding cryptocurrency transactions due to the lack of uniform regulation, creating uncertainty for both taxpayers and tax authorities. After determining the tax obligations of individuals in taxation, a survey has been conducted to assess the level [...] Read more.
This article highlights the complexity of taxation surrounding cryptocurrency transactions due to the lack of uniform regulation, creating uncertainty for both taxpayers and tax authorities. After determining the tax obligations of individuals in taxation, a survey has been conducted to assess the level of knowledge and compliance with tax obligations related to cryptocurrencies. The survey, in which 103 people participated, reveals the confusion and errors that prevail in perceptions of the tax obligations for cryptocurrencies, particularly in transactions such as swapping and staking in personal income tax. This results in almost half of the respondents (49.5%) not declaring any of their operations with cryptocurrencies. The reasons for this include the fact that the majority of respondents (66%) find the regulation of cryptocurrencies in Spain confusing and difficult to understand. Additionally, 87.4% believe that tax agencies should provide more information and resources on the taxation of cryptocurrencies and digital assets, and that there should be clearer and more comprehensive regulation. However, it should be noted that 41.7% also consider that tax regulation discourages investment in cryptocurrencies. Full article
(This article belongs to the Special Issue Shadow Economy and Tax Evasion)
14 pages, 788 KiB  
Article
Economic Determinants Concerning Corporate Tax Revenue
by Alena Andrejovská and Jozef Glova
Economies 2023, 11(11), 268; https://doi.org/10.3390/economies11110268 - 26 Oct 2023
Viewed by 1723
Abstract
This study quantifies the impact of selected economic determinants on corporate tax revenues. The methodology applies a panel regression method with the 27 EU Member States considered for 2004–2020. This paper used a panel regression model with fixed effects, and the Arellano adjustment [...] Read more.
This study quantifies the impact of selected economic determinants on corporate tax revenues. The methodology applies a panel regression method with the 27 EU Member States considered for 2004–2020. This paper used a panel regression model with fixed effects, and the Arellano adjustment was used to achieve robust standard deviations. Source data were obtained from the European Commission, Eurostat, World Bank and Transparency International databases. Based on this hypothesis, we wanted to prove that the nominal tax rate, which is legislatively determined based on political consensus, is a decisive determinant of the amount of tax revenue. However, the analysis results reject this hypothesis, although the model showed it as positive but statistically insignificant. On the other hand, an interesting research result is that the analysis confirmed the effective tax rate as a significant determinant of tax revenues. From this, we can conclude that policies should be aimed at an effective tax rate or a better harmonisation of the nominal tax rate towards the effective rate. Full article
(This article belongs to the Special Issue Shadow Economy and Tax Evasion)
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22 pages, 392 KiB  
Article
Nudges, Boosts, and Sludge: Using New Behavioral Approaches to Improve Tax Compliance
by James Alm, Lilith Burgstaller, Arrita Domi, Amanda März and Matthias Kasper
Economies 2023, 11(9), 223; https://doi.org/10.3390/economies11090223 - 1 Sep 2023
Cited by 2 | Viewed by 2806
Abstract
This paper discusses current developments in tax compliance research, with a focus on three aspects. First, we summarize empirical evidence on the traditional deterrence or enforcement approach, suggesting that tax audits and fines for noncompliance are critical in taxpayers’ compliance decisions. However, recent [...] Read more.
This paper discusses current developments in tax compliance research, with a focus on three aspects. First, we summarize empirical evidence on the traditional deterrence or enforcement approach, suggesting that tax audits and fines for noncompliance are critical in taxpayers’ compliance decisions. However, recent research indicates that the effects of deterrence are more nuanced than initially thought, suggesting that other interventions are needed to improve tax compliance. Second, therefore, we discuss research on behavioral approaches to increase tax compliance, starting with research that analyzes the effects of “nudges”, or interventions that use behavioral economics to alter the ways in which the choice architecture facing individuals is communicated to them by the tax administration. As applied to tax compliance, we conclude that nudges have had mixed effects on increasing tax compliance, suggesting that the specific design and implementation of these interventions determine their effectiveness. Third, we extend our discussion to other behavioral economics interventions that have not yet been studied widely in tax compliance research. These include “sludge”, or institutional features that complicate compliance, and “boosts”, or initiatives that target individuals’ competencies and thereby help them to make better decisions. Our central argument is that all three of these behavioral interventions should be utilized in the design of tax policies. However, for these methods to effectively complement traditional deterrence approaches, tax administrations should evaluate them before implementing them in the field. Closer cooperation between administrators and academics should thus be facilitated and encouraged. Full article
(This article belongs to the Special Issue Shadow Economy and Tax Evasion)
17 pages, 344 KiB  
Article
Tax Compliance Challenge through Taxpayers’ Typology
by Hana Paleka and Vanja Vitezić
Economies 2023, 11(9), 219; https://doi.org/10.3390/economies11090219 - 22 Aug 2023
Cited by 5 | Viewed by 4599
Abstract
Tax compliance has become a very popular academic research topic. Understandably so, as all modern societies face the challenge of limiting tax evasion and the losses this phenomenon causes to government revenues. Given the increase in duties in the aftermath of the economic [...] Read more.
Tax compliance has become a very popular academic research topic. Understandably so, as all modern societies face the challenge of limiting tax evasion and the losses this phenomenon causes to government revenues. Given the increase in duties in the aftermath of the economic downturn affected by COVID-19, increasing taxpayer compliance is one of the main tasks for governments worldwide. This study aimed to identify critical gaps in understanding taxpayer heterogeneity. For this purpose, an exploratory factor analysis of taxpayer perceptual and attitudinal elements was carried out. Our analysis revealed six factors influencing taxpayer compliance with the tax system. Furthermore, the cluster analysis identified four groups of taxpayers, and significant differences between the clusters and the descriptive profile of each cluster were also found. The specificities of these clusters point to a conclusion that the time has come for policy makers to employ strategies that stimulate voluntary tax compliance with minimum cost to the tax system. Full article
(This article belongs to the Special Issue Shadow Economy and Tax Evasion)
19 pages, 1299 KiB  
Article
Do Increased Tax Base and Reductions in the Underground Economy Compensate for Lost Tax Revenue Following a Tax Reduction Policy? Evidence from Italy 1982 to 2006
by Renzo Orsi and Knut Lehre Seip
Economies 2023, 11(7), 177; https://doi.org/10.3390/economies11070177 - 27 Jun 2023
Viewed by 998
Abstract
We here examine the frequent claim that an increase in the tax base and a decrease in tax evasion will compensate for a loss in tax revenues caused by a lower tax level. Using a unique data set for the estimated underground economy [...] Read more.
We here examine the frequent claim that an increase in the tax base and a decrease in tax evasion will compensate for a loss in tax revenues caused by a lower tax level. Using a unique data set for the estimated underground economy in Italy from 1982 to 2006, we found that a loss in tax revenues equivalent to 1% of the GDP would be partly compensated by an increase in GDP of 0.55%. The compensation would come from 0.31% of the GDP increase and from 0.24% of the reductions in the underground economy. These results apply to an economy with a high tax level (>32%) and a high underground economy (≥25%). Applying a high-resolution lead–lag method to the data, we ensured that tax changes were leading the GDP and, thus, a potential cause for changes in the GDP. Full article
(This article belongs to the Special Issue Shadow Economy and Tax Evasion)
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49 pages, 2357 KiB  
Article
Effect of the Shadow Economy on Tax Reform in Developing Countries
by Sena Kimm Gnangnon
Economies 2023, 11(3), 96; https://doi.org/10.3390/economies11030096 - 17 Mar 2023
Cited by 2 | Viewed by 1901
Abstract
The present analysis has examined the effect of the shadow economy on tax reform in developing countries. The first type of tax reform is the “structural tax reform” (STR) characterized by large episodes of tax revenue mobilization, identified by Akitoby et al. (2020) [...] Read more.
The present analysis has examined the effect of the shadow economy on tax reform in developing countries. The first type of tax reform is the “structural tax reform” (STR) characterized by large episodes of tax revenue mobilization, identified by Akitoby et al. (2020) [Tax revenue mobilization episodes in developing countries, Policy Design and Practice 3: 1–29] using the narrative approach that allows obtaining the precise nature and exact timing of major tax actions in several areas of tax policy and revenue administration that truly led to increases in tax revenue. The second type of tax reform is referred to as “tax transition reform” (TTR) and reflects the reform of the tax revenue structure that involves the reduction of its dependence on international trade tax revenue at the benefit of domestic tax revenue. The analysis has used various estimators and shown that the shadow economy reduces the likelihood of STR (notably in low-income countries), including in several tax policy areas and in the revenue administration area. The shadow economy also undermines the TTR process in countries whose tax revenue structure is strongly dependent on international trade tax revenue. Finally, it fosters the TTR process in countries that enjoy greater trade openness. Full article
(This article belongs to the Special Issue Shadow Economy and Tax Evasion)
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12 pages, 329 KiB  
Article
Tax Audits, Tax Rewards and Labour Market Outcomes
by Gaetano Lisi
Economies 2023, 11(2), 60; https://doi.org/10.3390/economies11020060 - 10 Feb 2023
Viewed by 1365
Abstract
This theoretical paper studies the relation between tax audits and labour market outcomes (job creation and unemployment) in an economy that contemplates penalties for firms that evade taxes and rewards for firms that comply with tax rules. Intuitively, the simultaneous presence of penalty [...] Read more.
This theoretical paper studies the relation between tax audits and labour market outcomes (job creation and unemployment) in an economy that contemplates penalties for firms that evade taxes and rewards for firms that comply with tax rules. Intuitively, the simultaneous presence of penalty and reward amplifies the role of auditing, since tax audits allow both punishing tax-evading firms and rewarding fiscally honest firms. Indeed, the presence of tax rewards can make the effect of tax audits on firms’ net profits positive. However, the effect of tax audits on labour market outcomes is ambiguous. By setting the choice of optimal fiscal policy in a different and original way, this paper is able to derive a formula for the audit rate—consistent with the budget constraint—that makes the relation between tax audits and labour market outcomes positive. Full article
(This article belongs to the Special Issue Shadow Economy and Tax Evasion)
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