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Tax Evasion and Self-Employment in a High-Tax Country: Evidence from Sweden

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Author Info
Per Engström ()
Bertil Holmlund ()

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Abstract

Self-employed individuals have arguably greater opportunities than wage earners to underreport their incomes. The incentives for underreporting should be especially strong in an economy with generally high taxes. This paper uses recent income and expenditure data to examine the extent of underreporting of income among self-employed individuals in Sweden. A key hypothesis is that underreporting of incomes among the self-employed would be visible in the data as “excess food consumption”, for a given level of observed income. Our results confirm the underreporting hypothesis. In particular, we estimate that households with at least one self-employed member underreport their total incomes by around 30 percent. Underreporting appears to be twice as prevalent among self-employed people with unincorporated businesses as among those with incorporated businesses.

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Publisher Info
Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number CESifo Working Paper No. 1736.

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Date of creation: 2006
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Handle: RePEc:ces:ceswps:_1736

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Related research
Keywords: tax evasion; self-employment; Engel curves;

Other versions of this item:

Find related papers by JEL classification:
D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lindsay M. Tedds, 2004. "Nonparametric expenditure-based estimation of income under-reporting and the underground economy," Department of Economics Working Papers 2004-17, McMaster University. [Downloadable!]
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  6. Alexius, Annika & Post, Erik, 2005. "Exchange Rates and Asymmetric Shocks in Small Open Economies," Working Paper Series 2005:10, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  7. Welz, Peter & Österholm, Pär, 2005. "Interest Rate Smoothing versus Serially Correlated Errors in Taylor Rules: Testing the Tests," Working Paper Series 2005:14, Uppsala University, Department of Economics. [Downloadable!]
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    Other versions:
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    Other versions:
  11. Per Engström & Bertil Holmlund, 2006. "Tax Evasion and Self-Employment in a High-Tax Country: Evidence from Sweden," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  12. Björnerstedt, Jonas & Westermark, Andreas, 2006. "Bargaining and Strategic Discrimination," Working Paper Series 2006:6, Uppsala University, Department of Economics. [Downloadable!]
  13. Anders Forslund & Nils Gottfries & Andreas Westermark, 2006. "Real and Nominal Wage Adjustment in Open Economies," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  14. Zamac , Jovan, 2005. "Winners and Losers from a Demographic Shock under Different Intergenerational Transfer Schemes," Working Paper Series 2005:13, Uppsala University, Department of Economics. [Downloadable!]
  15. Holmberg, Pär, 2005. "Asymmetric Supply Function Equilibrium with Constant Marginal Costs," Working Paper Series 2005:16, Uppsala University, Department of Economics. [Downloadable!]
  16. Agell, Jonas & Englund, Peter & Södersten, Jan, 1996. "Tax Reform of the Century - The Swedish Experiment," Working Paper Series 1996:13, Uppsala University, Department of Economics.
    Other versions:
  17. Klevmarken, N. Anders, 2006. "The Distribution of Wealth in Sweden: Trends and Driving factors," Working Paper Series 2006:4, Uppsala University, Department of Economics. [Downloadable!]
  18. Nykvist, Jenny, 2005. "Entrepreneurship and Liquidity Constraints: Evidence from Sweden," Working Paper Series 2005:21, Uppsala University, Department of Economics. [Downloadable!]
  19. Angelov, Nikolay, 2006. "Structural breaks in Iron-Ore prices: The impact of the 1973 oil crisis," Working Paper Series 2006:11, Uppsala University, Department of Economics. [Downloadable!]
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    Other versions:
  22. Alexius, Annika & Post, Erik, 2006. "Cointegration and the stabilizing role of exchange rates," Working Paper Series 2006:8, Uppsala University, Department of Economics. [Downloadable!]
  23. Herb J. Schuetze, 2002. "Profiles of Tax Non-compliance Among the Self-Employed in Canada: 1969 to 1992," Canadian Public Policy, University of Toronto Press, vol. 28(2), pages 219-237, June. [Downloadable!] (restricted)
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  25. Helge Bennmarker & Kenneth Carling & Bertil Holmlund, 2005. "Do Benefit Hikes Damage Job Finding? Evidence from Swedish Unemployment Insurance Reforms," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  26. Pissarides, Christopher A. & Weber, Guglielmo, 1989. "An expenditure-based estimate of Britain's black economy," Journal of Public Economics, Elsevier, vol. 39(1), pages 17-32, June. [Downloadable!] (restricted)
  27. Olof Åslund & Peter Fredriksson, 2005. "Ethnic Enclaves and Welfare Cultures: Quasi-Experimental Evidence," IZA Discussion Papers 1536, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  28. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June. [Downloadable!] (restricted)
  29. Hästö, Peter & Holmberg, Pär, 2005. "Some Inequalities related to the analysis of electricity auctions," Working Paper Series 2005:23, Uppsala University, Department of Economics. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Tedds, Lindsay, 2007. "Keeping it off the Books: An Empirical Investigation of Firms that Engage in Tax Evasion," MPRA Paper 4213, University Library of Munich, Germany. [Downloadable!]
  2. Hallberg, Daniel, 2006. "Cross-national differences in income poverty among Europe´s 50+," Working Paper Series 2006:14, Uppsala University, Department of Economics. [Downloadable!]
  3. Henrekson, Magnus & Sanandaji, Tino, 2008. "Entrepreneurship and the Theory of Taxation," Working Paper Series 732, Research Institute of Industrial Economics, revised 19 Aug 2009. [Downloadable!]
  4. Blomquist, Sören & Christiansen, Vidar, 2007. "Public Provision of Private Goods and Nondistortionary Marginal Tax Rates," Working Paper Series 2007:7, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
  5. Hansson, Åsa, 2008. "Income taxes and the probability to become self-employed: The case of Sweden," Ratio Working Papers 122, The Ratio Institute. [Downloadable!]
  6. Ågren, Martin, 2006. "Prospect Theory and Higher Moments," Working Paper Series 2006:24, Uppsala University, Department of Economics. [Downloadable!]
  7. Engström, Per & Holmlund, Bertil, 2006. "Tax Evasion and Self-Employment in a High-Tax Country: Evidence from Sweden," Working Paper Series 2006:12, Uppsala University, Department of Economics. [Downloadable!]
    Other versions:
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