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Is there a Displacement Deadweight Loss from Tax Evasion? Estimates Using Firm Surveys from the Czech Republic

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Author Info
Hanousek, Jan
Palda, Filip

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Abstract

In 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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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 3911.

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Date of creation: Jun 2007
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Handle: RePEc:pra:mprapa:3911

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Related research
Keywords: Underground economy; social cost of public funds; taxation.;

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Find related papers by JEL classification:
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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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. Filip Palda, 1998. "Evasive Ability and the Efficiency Cost of the Underground Economy," Canadian Journal of Economics, Canadian Economics Association, vol. 31(5), pages 1118-1138, November. [Downloadable!] (restricted)
  2. Rosella Levaggi, 2006. "Tax evasion and the cost of public sector activities," Working Papers ubs0616, University of Brescia, Department of Economics. [Downloadable!]
  3. Dan Usher, 1986. "Tax Evasion and the Marginal Cost of Public Funds," Working Papers 637, Queen's University, Department of Economics.
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  4. Michela Nardo, 2003. "The Quantification of Qualitative Survey Data: A Critical Assessment," Journal of Economic Surveys, Blackwell Publishing, vol. 17(5), pages 645-668, December. [Downloadable!] (restricted)
  5. Enrico D’Elia, 2005. "Using the results of qualitative surveys in quantitative analysis," ISAE Working Papers 56, ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY). [Downloadable!]
  6. Browning, Edgar K, 1976. "The Marginal Cost of Public Funds," Journal of Political Economy, University of Chicago Press, vol. 84(2), pages 283-98, April. [Downloadable!] (restricted)
  7. Dan Usher, 1982. "The Private Cost of Public Funds: Variations on Themes by Browning, Atkinson and Stern," Working Papers 481, Queen's University, Department of Economics.
  8. Dan Usher, 1975. "Some Questions About the Regional Development Incentives Act," Canadian Public Policy, University of Toronto Press, vol. 1(4), pages 557-575, Autumn. [Downloadable!] (restricted)
  9. Dan Usher, 2002. "The Marginal Cost of Public Funds is the Ratio of Mean Income to median Income," Working Papers 1011, Queen's University, Department of Economics. [Downloadable!]
  10. Matz Dahlberg & Anders Forslund, 2005. "Direct Displacement Effects of Labour Market Programmes," Scandinavian Journal of Economics, Blackwell Publishing, vol. 107(3), pages 475-494, 09. [Downloadable!] (restricted)
  11. Filip Palda, 2001. "A New Look at the Laffer Curve and the Displacement Loss from Tax Evasion," Public Economics 0111006, EconWPA. [Downloadable!]
  12. Cremer, Helmuth & Gahvari, Firouz, 2000. "Tax evasion, fiscal competition and economic integration," European Economic Review, Elsevier, vol. 44(9), pages 1633-1657, October. [Downloadable!] (restricted)
  13. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November. [Downloadable!] (restricted)
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