The paper estimates the distributional implications of income tax evasion in Hungary based on a random sample of administrative tax records of 230 thousand individuals. Gross incomes in the administrative tax records are compared with those in a nationally representative household budget survey, assuming that tax-evaders are more likely to report their true incomes in an anonymous interview. Our estimates show that the average rate of underreporting is 11%, which conceals large differences between self-employed (who hide the majority of their incomes) and employees. The estimates are likely to be lower bound, due to measurement error in the income survey. These rates are then used in EUROMOD, a tax-benefit microsimulation model to calculate the fiscal and distributional implications of underreporting, while taking account of all major direct taxes and cash benefits and also their interactions. Tax evasion reduces fiscal revenues from personal income taxes by about 19%. While the occurrence of poverty is not affected, income inequality becomes significantly higher (the Gini coefficient increases by 7%), suggesting that high earners tend to evade proportionately more. Finally, we find that tax evasion largely reduces the progressivity of the tax system.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
17287.
Find related papers by JEL classification: H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution I38 - Health, Education, and Welfare - - Welfare and Poverty - - - Government Programs; Provision and Effects of Welfare Programs C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
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James Andreoni & Brian Erard & Jonathan Feinstein, 1998.
"Tax Compliance,"
Journal of Economic Literature,
American Economic Association, vol. 36(2), pages 818-860, June.
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