Economies

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18 pages, 2100 KiB

Open AccessArticle

Tax Evasion and Company Survival: A Brazilian Case Study

by Jorge Luis Tonetto, Josep Miquel Pique, Adelar Fochezatto and Carina Rapetti

Economies 2024, 12(11), 286; https://doi.org/10.3390/economies12110286 - 25 Oct 2024

Viewed by 1171

Enterprises face significant growth and survival challenges in highly competitive markets. Many companies fail to meet their tax obligations, which deprives society of essential resources and often results in tax penalties. This article examines whether companies that receive tax fines for evasion have [...] Read more.

Enterprises face significant growth and survival challenges in highly competitive markets. Many companies fail to meet their tax obligations, which deprives society of essential resources and often results in tax penalties. This article examines whether companies that receive tax fines for evasion have a longer or shorter life expectancy compared to those that consistently comply with tax regulations. To analyze survival rates, the Kaplan–Meier estimator and Cox regression model were applied, considering factors such company size, sector, location, and tax evasion fines. The study included data from 11,297 firms established in 2017, in Rio Grande do Sul, Brazil. The findings indicate that companies fined for tax evasion had a higher survival rate (69%) compared to those without fines (38%) by 2023. This suggests that fines might serve as a corrective measure, helping companies realign and improve their chances of survival. Additionally, the study shows that medium-sized enterprises face significant challenges, possibly due to exceeding the limits of a simplified tax regime. This study highlights the importance of continued research across different regions and countries to validate these findings and enhance tax administration strategies. Full article

(This article belongs to the Special Issue Shadow Economy and Tax Evasion)

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19 pages, 925 KiB

Open AccessArticle

Earmarking Taxation and Compliance: Some Evidence from Car Ownership in Italy

by Lory Barile, Giulio Grossi, Patrizia Lattarulo and Maria Grazia Pazienza

Economies 2024, 12(9), 246; https://doi.org/10.3390/economies12090246 - 12 Sep 2024

Viewed by 795

Abstract

This study focuses on tax evasion within the framework of earmarking taxation, specifically focusing on the evasion of car ownership taxes. We utilize a unique and extensive micro-database that combines information on regular payments of the tax due, late payments following friendly warnings, [...] Read more.

This study focuses on tax evasion within the framework of earmarking taxation, specifically focusing on the evasion of car ownership taxes. We utilize a unique and extensive micro-database that combines information on regular payments of the tax due, late payments following friendly warnings, and non-payment of vehicle ownership taxes, integrated with fiscal data, individual data, and municipal-level data. The empirical analysis examines individual, socio-economic, and institutional factors related to this issue. Drawing a rich dataset from the 2014 Tuscany car tax, we employ a multilevel logistic model for our empirical investigation. Our findings reveal that tax evasion poses an equity problem, as the inclination to evade vehicle ownership taxes is concentrated among specific demographic categories and types of vehicles. We also suggest that regional-level policies, such as friendly warnings, could be more effective if implemented with greater rigour. Lastly, our results indicate that reinforcing civic responsibility and enhancing institutional and political quality could prove particularly beneficial in enhancing tax compliance. Full article

(This article belongs to the Special Issue Shadow Economy and Tax Evasion)

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11 pages, 558 KiB

Open AccessArticle

“Optimal Honesty” in the Context of Fiscal Crimes

by Lory Barile, John Cullis and Philip Jones

Economies 2024, 12(9), 242; https://doi.org/10.3390/economies12090242 - 11 Sep 2024

Viewed by 725

Abstract

This paper begins by contrasting the caricatures ‘homo and femina economicus’ with ‘homo and femina realitus’. Against this backdrop, the paper considers three ‘apparently falsified’ empirical predictions of the standard expected utility model of individual decision-making concerning participation in [...] Read more.

This paper begins by contrasting the caricatures ‘homo and femina economicus’ with ‘homo and femina realitus’. Against this backdrop, the paper considers three ‘apparently falsified’ empirical predictions of the standard expected utility model of individual decision-making concerning participation in fiscal crimes: that tax evasion and benefit fraud can be treated identically; fiscal crimes should be endemic; and that all individuals, depending on parameter values, should be either honest or dishonest. A utility function relating to decisions with a moral dimension is used to offer insight into the rationalization of the predictions and involves defining an individual’s ‘optimal honesty’ in the context of fiscal crimes. The policy implications of the approach are briefly explored. Full article

(This article belongs to the Special Issue Shadow Economy and Tax Evasion)

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17 pages, 817 KiB

Open AccessFeature PaperArticle

Is There a Link between Tax Administration Performance and Tax Evasion?

by Milos Milosavljevic, Marina Ignjatovic, Željko Spasenić, Nemanja Milanović and Aleksandar Đoković

Economies 2024, 12(8), 193; https://doi.org/10.3390/economies12080193 - 24 Jul 2024

Viewed by 1629

Abstract

The performance of tax administrations (TAs) is usually described as their capacity to complete activities with the minimum of resources engaged. Accordingly, tax administration performance is a multifaceted phenomenon, and measuring and benchmarking its performance against other countries or regions remains a puzzle [...] Read more.

The performance of tax administrations (TAs) is usually described as their capacity to complete activities with the minimum of resources engaged. Accordingly, tax administration performance is a multifaceted phenomenon, and measuring and benchmarking its performance against other countries or regions remains a puzzle for researchers and practitioners. This paper introduces a new approach for measuring tax administration performance using the Composite I-Distance Indicator (CIDI) based on 11 individual performance measures from 35 European tax administrations over two consecutive years (2018–2019). For the given scores of tax administrations, we conducted a correlation analysis with (a) tax evasion loss and (b) the fiscal deficit of countries in which these tax administrations operate, aiming to assess the strength of the statistical relationship between these variables. The study highlights Denmark and the Netherlands as exemplary models for tax administration, with “Revenue Collection” being identified as a crucial driver of excellence and “Operational Performance” (such as “e-filing” and “on-time filing”) forming critical aspects of TA efficiency. Also, the study finds a negative correlation between tax avoidance and tax administration performance. Full article

(This article belongs to the Special Issue Shadow Economy and Tax Evasion)

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25 pages, 566 KiB

Open AccessArticle

Asymmetric Analysis of Causal Relations in the Informality–Globalisation Nexus in Africa

by Segun Thompson Bolarinwa and Munacinga Simatele

Economies 2024, 12(7), 166; https://doi.org/10.3390/economies12070166 - 28 Jun 2024

Cited by 1 | Viewed by 761

Abstract

This study examines the causal relationship between informality and globalisation in 30 African countries. It deviates from traditional research by adopting a bi-directional framework to address reverse causality. By applying the DH causality method in both linear and nonlinear frameworks, this research challenges [...] Read more.

This study examines the causal relationship between informality and globalisation in 30 African countries. It deviates from traditional research by adopting a bi-directional framework to address reverse causality. By applying the DH causality method in both linear and nonlinear frameworks, this research challenges the assumption of a linear relationship and finds that the causal structure is better explained within a nonlinear asymmetric context. This paper provides recommendations based on the identified causal relationships. For countries in which globalisation leads to informality, such as Angola, Congo, Guinea, Gambia, Mozambique, Sierra Leone, Tunisia, Tanzania, Uganda, Zambia, and Zimbabwe, the paper suggests policy measures to integrate the informal sector into the formal economy. These measures include designing programmes to facilitate transition, implementing skill development initiatives, and establishing support mechanisms for entrepreneurship and small businesses. Additionally, this paper advises the development of social safety nets, improved market access, effective monitoring and regulation mechanisms, education on the benefits of globalisation, and international cooperation. For countries experiencing positive shocks from informality to globalisation, this paper recommends targeted support programs for entrepreneurship, initiatives to formalize the sector, the enhancement of market access, and skill development tailored to the needs of the informal sector. These policy recommendations aim to capitalize on the positive shocks in informality by fostering entrepreneurship, formalization, market access, and skill development. In the case of negative shocks in globalisation leading to positive shocks in informality, the paper suggests implementing resilience-building policies for the informal sector during economic downturns, establishing social safety nets, and adopting flexible labour policies. Full article

(This article belongs to the Special Issue Shadow Economy and Tax Evasion)

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25 pages, 396 KiB

Open AccessArticle

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

Cited by 1 | Viewed by 2855

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

Open AccessArticle

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

Cited by 2 | Viewed by 2482

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

Open AccessArticle

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 7 | Viewed by 5211

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

Open AccessArticle

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 9823

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

Open AccessArticle

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 1434

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

Open AccessFeature PaperArticle

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 5 | Viewed by 2723

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

Open AccessArticle

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 1805

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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