Edward Christie () (The Vienna Institute for International Economic Studies, wiiw) Mario Holzner () (The Vienna Institute for International Economic Studies, wiiw)
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This study computes estimates of tax compliance in selected European countries for value added tax, excise tax, personal income tax and social security contributions, using national accounts data together with data on official tax structures and revenues. These estimates are then analysed to explain the differences in compliance rates across European countries and across time. In accordance with the classical models of Allingham-Sandmo and their successors, we find that tax evasion is positively correlated with the tax rate itself. However, we also find support for Bloomquist’s hypothesis that higher income inequality leads to higher tax evasion. We also find that the quality of the judicial system plays a role in explaining VAT evasion, confirming general hypotheses on the main drivers of the shadow economy. Finally, we find that our chosen measure of tax complexity is positively correlated with tax compliance for personal income tax, leading us to doubt the soundness of ‘flat tax’ reforms in transition countries, at least with respect to their impact on compliance.
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Paper provided by The Vienna Institute for International Economic Studies, wiiw in its series Working Papers with number
40.
Length: 53 pages Date of creation: Jun 2006 Date of revision: Publication status: Published as wiiw Working Paper, June 2006 Handle: RePEc:wii:wpaper:40
Find related papers by JEL classification: C80 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - General H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion H30 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - General