Is there a displacement deadweight loss from tax evasion? Estimates using firm surveys from the Czech Republic
AbstractIn the presence of the underground economy taxes give rise to a deadweight loss from displacement of efficient producers by inefficient producers. We consider an economy in which a producer faces two types of costs: the cost of production, and taxes. If the ability to evade taxes is inversely proportional to the ability to keep production costs down, high tax rates may cause inefficient producers to crowd out efficient producers. We estimate this deadweight loss from surveys of 426 Czech firms taken in 2004 and 2005. We find that the deadweight loss due to this crowding out can be several times as large as the triangle deadweight losses from discouraged consumption. Our paper provides the first estimates ever of the displacement loss from tax evasion.
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Bibliographic InfoArticle provided by Springer in its journal Economic Change and Restructuring.
Volume (Year): 42 (2009)
Issue (Month): 3 (August)
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Web page: http://www.springerlink.com/link.asp?id=113294
Underground economy; Social cost of public funds; Taxation; Tax evasion; H26; H43; K42; O17;
Other versions of this item:
- Hanousek, Jan & Palda, Filip, 2007. "Is there a Displacement Deadweight Loss from Tax Evasion? Estimates Using Firm Surveys from the Czech Republic," MPRA Paper 3911, University Library of Munich, Germany.
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
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