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 InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 3911.
Date of creation: Jun 2007
Date of revision:
Underground economy; social cost of public funds; taxation;
Other versions of this item:
- Jan Hanousek & Filip Palda, 2009. "Is there a displacement deadweight loss from tax evasion? Estimates using firm surveys from the Czech Republic," Economic Change and Restructuring, Springer, vol. 42(3), pages 139-158, August.
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
This paper has been announced in the following NEP Reports:
- NEP-ACC-2007-07-13 (Accounting & Auditing)
- NEP-ALL-2007-07-13 (All new papers)
- NEP-PBE-2007-07-13 (Public Economics)
- NEP-TRA-2007-07-13 (Transition Economics)
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