Tax Toleration and Tax Compliance: How Government Affects the Propensity of Firms to Enter the Unofficial Economy
AbstractWe propose a model of how 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. Our analysis implies that the incentive of firms to produce underground depends on tax rates relative to firmspecific thresholds of tax toleration that are decisively affected by quality of governance — in particular by the presence of high-grade institutions delivering services that profit-maximizing firms deem worth paying for. 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 D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy in its series Discussion Papers with number 7_2008.
Date of creation: 31 May 2008
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- Hibbs, Douglas A., 2009. "Tax Toleration and Tax Compliance: How Government Affects the Propensity of Firms to Enter the Unofficial Economy," MPRA Paper 15897, University Library of Munich, Germany.
- 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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