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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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
Date of revision:
Contact details of provider:
Postal: via Medina 40, 80133 I - Napoli
Web page: http://economia.uniparthenope.it/ise/sito/index.htm
More information through EDIRC
Other versions of this item:
- 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
This paper has been announced in the following NEP Reports:
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.:
- Loayza, Norman A., 1997.
"The economics of the informal sector : a simple model and some empirical evidence from Latin America,"
Policy Research Working Paper Series
1727, The World Bank.
- Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 129-162, December.
- Mookherjee, Dilip & Png, I P L, 1995. "Corruptible Law Enforcers: How Should They Be Compensated?," Economic Journal, Royal Economic Society, vol. 105(428), pages 145-59, January.
- Ronald G. Cummings & Jorge Martinez-Vazquez & Michael McKee & Benno Torgler, 2005.
"Effects of Tax Morale on Tax Compliance: Experimental and Survey Evidence,"
International Center for Public Policy Working Paper Series, at AYSPS, GSU
paper0516, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
- Cummings, Ronald G. & Martinez-Vazquez, Jorge & McKee, Michael & Torgler, Benno, 2006. "Effects of Tax Morale on Tax Compliance: Experimental and Survey Evidence," Berkeley Olin Program in Law & Economics, Working Paper Series qt8sh2w9fp, Berkeley Olin Program in Law & Economics.
- Ronald G. Cummings & Jorge Martinez-Vazquez & Michael McKee & Benno Torgler, 2007. "Effects of Tax Morale on Tax Compliance: Experimental and Survey Evidence," NCER Working Paper Series 12, National Centre for Econometric Research.
- Ronald G. Cummings & Jorge Martinez-Vazquez & Michael McKee & Benno Torgler, 2005. "Effects of Tax Morale on Tax Compliance: Experimental and Survey Evidence," CREMA Working Paper Series 2005-29, Center for Research in Economics, Management and the Arts (CREMA).
- Geeta Batra & Daniel Kaufmann & Andrew H. W. Stone, 2003. "Investment Climate Around the World : Voices of the Firms from the World Business Environment Survey," World Bank Publications, The World Bank, number 15143.
- 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.
- Jay Pil Choi & Marcel Thum, 2002.
"Corruption and the Shadow Economy,"
CESifo Working Paper Series
633, CESifo Group Munich.
- Jakob Svensson, 2003.
"Who Must Pay Bribes And How Much? Evidence From A Cross Section Of Firms,"
The Quarterly Journal of Economics,
MIT Press, vol. 118(1), pages 207-230, February.
- Svensson, Jakob, 2002. "Who Must Pay Bribes and How Much? Evidence from a cross-section of firms," Seminar Papers 713, Stockholm University, Institute for International Economic Studies.
- Svensson, Jakob, 2000. "Who must pay bribes and how much? Evidence from a cross-section of firms," Policy Research Working Paper Series 2486, The World Bank.
- Francesco Busato & Bruno Chiarini & Pasquale De Angelis & Elisabetta Marzano, 2008. "Firm-oriented policies, tax cheating and perverse outcomes," Discussion Papers 10_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
- Simon Johnson & Daniel Kaufman & Andrei Shleifer, 1997. "The Unofficial Economy in Transition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 159-240.
- Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
- Sandmo, Agnar, 2005. "The Theory of Tax Evasion: A Retrospective View," National Tax Journal, National Tax Association, vol. 58(4), pages 643-63, December .
- Johnson, Simon & Kaufmann, Daniel & McMillan, John & Woodruff, Christopher, 2000.
"Why do firms hide? Bribes and unofficial activity after communism,"
Journal of Public Economics,
Elsevier, vol. 76(3), pages 495-520, June.
- Simon Johnson & Daniel Kaufmann & John McMillan & Christopher Woodruff, 2003. "Why Do Firms Hide? Bribes and Unofficial Activity after Communism," Public Economics 0308004, EconWPA.
- Johnson, Simon & McMillan, John & Woodruff, Christopher, 1999. "Why do Firms Hide? Bribes and Unofficial Activity After Communism," CEPR Discussion Papers 2105, C.E.P.R. Discussion Papers.
- Andvig, Jens Chr. & Moene, Karl Ove, 1990.
"How corruption may corrupt,"
Journal of Economic Behavior & Organization,
Elsevier, vol. 13(1), pages 63-76, January.
- Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-92, May.
- Simon Johnson & John McMillan & Christopher Woodruff, 2001.
"Courts and Relational Contracts,"
NBER Working Papers
8572, National Bureau of Economic Research, Inc.
- Nabin Munirul Haque & Bose Gautam, 2008. "Partners in Crime: Collusive Corruption and Search," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 8(1), pages 1-23, April.
- Alm, James & Jackson, Betty R. & McKee, Michael, 1993. "Fiscal exchange, collective decision institutions, and tax compliance," Journal of Economic Behavior & Organization, Elsevier, vol. 22(3), pages 285-303, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Antonietta Milano).
If references are entirely missing, you can add them using this form.