Tax Toleration and Tax Compliance: How Government Affects the Propensity of Firms to Enter the Unofficial Economy
AbstractHow do government-supplied institutional benefits and the taxation and regulation of producers affect the propensity of private�firms to enter the unofficial economy and evade taxation? We propose a model in which the incentive of firms to operate underground depends on tax rates relative to �firm-specific thresholds of tax toleration that are decisively affected by quality of governance �in particular by the presence of high-grade institutions delivering services enhancing official production that anchor profit-maximizing firms to the official economy. Some key predictions of the model concerning the determinants of�firms�tax toleration and tax compliance receive broad support from empirical analyses of enterprise-level data from the World Bank's World Business Environment Surveys.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 15897.
Date of creation: 18 Jun 2009
Date of revision:
tax toleration; tax compliance; tax evasion; corruption; quality of government; institutions; unofficial production; black economy; shadow economy; underground economy; micro political economy of firm behavior;
Other versions of this item:
- Douglas A. Hibbs, Jr. & Violeta Piculescu, 2008. "Tax Toleration and Tax Compliance: How Government Affects the Propensity of Firms to Enter the Unofficial Economy," Discussion Papers 7_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- H0 - Public Economics - - General
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
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