IDEAS home Printed from https://ideas.repec.org/a/bla/etrans/v27y2019i1p223-246.html
   My bibliography  Save this article

‘Flattening’ tax evasion? : Evidence from the post‐communist natural experiment

Author

Listed:
  • Randall K. Filer
  • Jan Hanousek
  • Tomáš Lichard
  • Karine Torosyan

Abstract

We analyze the response of tax evasion to the introduction of a flat tax in several transition economies. Using a novel estimator based on household level data, we show that in most of the countries studied there was no discernible effect on the measured size of unreported income following a flat tax reform. This may imply that decreases in marginal tax rates may frequently have been accompanied by a parallel deterioration in attitudes towards public services and the government in general. The countries that show a response to the flat tax reform appear to be those where satisfaction with government services increased.

Suggested Citation

  • Randall K. Filer & Jan Hanousek & Tomáš Lichard & Karine Torosyan, 2019. "‘Flattening’ tax evasion? : Evidence from the post‐communist natural experiment," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 27(1), pages 223-246, January.
    • Handle: RePEc:bla:etrans:v:27:y:2019:i:1:p:223-246
    DOI: 10.1111/ecot.12189
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/ecot.12189
    Download Restriction: no
    File URL: https://libkey.io/10.1111/ecot.12189?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-392, May.
    2. Eichenbaum, Martin & Hansen, Lars Peter, 1990. "Estimating Models with Intertemporal Substitution Using Aggregate Time Series Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(1), pages 53-69, January.
    3. Claus Thustrup Kreiner & David Dreyer Lassen & Søren Leth-Petersen, 2014. "Measuring the Accuracy of Survey Responses Using Administrative Register Data: Evidence from Denmark," NBER Chapters, in: Improving the Measurement of Consumer Expenditures, pages 289-307, National Bureau of Economic Research, Inc.
    4. Panayiota Lyssiotou & Panos Pashardes & Thanasis Stengos, 2004. "Estimates of the black economy based on consumer demand approaches," Economic Journal, Royal Economic Society, vol. 114(497), pages 622-640, July.
    5. David Giles & Lindsay Tedds & Gugsa Werkneh, 2002. "The Canadian underground and measured economies: Granger causality results," Applied Economics, Taylor & Francis Journals, vol. 34(18), pages 2347-2352.
    6. Masao Ogaki & Carmen M. Reinhart, 1998. "Measuring Intertemporal Substitution: The Role of Durable Goods," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 1078-1098, October.
    7. Eric Friedman & Simon Johnson & Daniel Kaufmann & Pablo Zoido-Lobaton, 2007. "Dodging the Grabbing Hand: The Determinants of Unofficial Activity in 69 Countries," Palgrave Macmillan Books, in: Erik Berglöf & Gérard Roland (ed.), The Economics of Transition, chapter 9, pages 298-334, Palgrave Macmillan.
    8. David Giles, 1997. "Causality between the measured and underground economies in New Zealand," Applied Economics Letters, Taylor & Francis Journals, vol. 4(1), pages 63-67.
    9. Christopher Bajada, 2003. "Business Cycle Properties of the Legitimate and Underground Economy in Australia," The Economic Record, The Economic Society of Australia, vol. 79(247), pages 397-411, December.
    10. Erik Hurst & Geng Li & Benjamin Pugsley, 2014. "Are Household Surveys Like Tax Forms? Evidence from Income Underreporting of the Self-Employed," The Review of Economics and Statistics, MIT Press, vol. 96(1), pages 19-33, March.
    11. Radovan Chalupka, 2004. "Tax Reform in Slovakia," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 54(9-10), pages 382-390, September.
    12. Lacroix, Guy & Fortin, Bernard, 1992. "Utility-Based Estimation of Labour Supply Functions in the Regular and Irregular Sectors," Economic Journal, Royal Economic Society, vol. 102(415), pages 1407-1422, November.
    13. Karine Torosyan & Randall K. Filer, 2014. "Tax reform in Georgia and the size of the shadow economy," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 22(1), pages 179-210, January.
    14. 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.
    15. Tomas Lichard & Jan Hanousek & Randall K. Filer, 2012. "Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation," Economics Working Paper Archive at Hunter College 438, Hunter College Department of Economics.
    16. repec:bla:scandj:v:88:y:1986:i:4:p:643-68 is not listed on IDEAS
    17. Yuriy Gorodnichenko & Jorge Martinez-Vazquez & Klara Sabirianova Peter, 2009. "Myth and Reality of Flat Tax Reform: Micro Estimates of Tax Evasion Response and Welfare Effects in Russia," Journal of Political Economy, University of Chicago Press, vol. 117(3), pages 504-554, June.
    18. James May & William Pyle & Paul Sommers, 2002. "Does Governance Explain Unofficial Activity?," Middlebury College Working Paper Series 0201, Middlebury College, Department of Economics.
    19. Kesselman, Jonathan R., 1989. "Income tax evasion : An intersectoral analysis," Journal of Public Economics, Elsevier, vol. 38(2), pages 137-182, March.
    20. Merike Kukk & Karsten Staehr, 2014. "Income underreporting by households with business income: evidence from Estonia," Post-Communist Economies, Taylor & Francis Journals, vol. 26(2), pages 257-276, June.
    21. Naomi E. Feldman & Joel Slemrod, 2007. "Estimating tax noncompliance with evidence from unaudited tax returns," Economic Journal, Royal Economic Society, vol. 117(518), pages 327-352, March.
    22. Per Engstrom & Bertil Holmlund, 2009. "Tax evasion and self-employment in a high-tax country: evidence from Sweden," Applied Economics, Taylor & Francis Journals, vol. 41(19), pages 2419-2430.
    23. Koskela, Erkki, 1983. "A note on progression, penalty schemes and tax evasion," Journal of Public Economics, Elsevier, vol. 22(1), pages 127-133, October.
    24. Pissarides, Christopher A. & Weber, Guglielmo, 1989. "An expenditure-based estimate of Britain's black economy," Journal of Public Economics, Elsevier, vol. 39(1), pages 17-32, June.
    25. Lindsay Tedds, 2010. "Estimating the income reporting function for the self-employed," Empirical Economics, Springer, vol. 38(3), pages 669-687, June.
    26. Mr. Manik L. Shrestha & Mr. Adriaan M. Bloem, 2000. "Comprehensive Measures of GDP and the Unrecorded Economy," IMF Working Papers 2000/204, International Monetary Fund.
    27. Watson, Harry, 1985. "Tax evasion and labor markets," Journal of Public Economics, Elsevier, vol. 27(2), pages 231-246, July.
    28. Brewer, Mike & O'Dea, Cormac, 2012. "Measuring living standards with income and consumption: evidence from the UK," ISER Working Paper Series 2012-05, Institute for Social and Economic Research.
    29. Sandmo, Agnar, 2005. "The Theory of Tax Evasion: A Retrospective View," National Tax Journal, National Tax Association;National Tax Journal, vol. 58(4), pages 643-663, December.
    30. Cowell, Frank A, 1985. "The Economic Analysis of Tax Evasion," Bulletin of Economic Research, Wiley Blackwell, vol. 37(3), pages 163-193, September.
    31. Anne-Marie Brook & Willi Leibfritz, 2005. "Slovakia's Introduction of a Flat Tax as Part of Wider Economic Reforms," OECD Economics Department Working Papers 448, OECD Publishing.
    32. Trandel, Greg & Snow, Arthur, 1999. "Progressive income taxation and the underground economy," Economics Letters, Elsevier, vol. 62(2), pages 217-222, February.
    33. Jan Hanousek & Filip Palda, 2004. "Quality of Government Services and the Civic Duty to Pay Taxes in the Czech and Slovak Republics, and other Transition Countries," Kyklos, Wiley Blackwell, vol. 57(2), pages 237-252, May.
    34. Eric Friedman & Simon Johnson & Daniel Kaufmann & Pablo Zoido-Lobaton, 2007. "Dodging the Grabbing Hand: The Determinants of Unofficial Activity in 69 Countries," Palgrave Macmillan Books, in: Erik Berglöf & Gérard Roland (ed.), The Economics of Transition, chapter 9, pages 298-334, Palgrave Macmillan.
    35. J. W. May & W. Pyle & P. M. Sommers, 2002. "Does governance explain unofficial activity?," Applied Economics Letters, Taylor & Francis Journals, vol. 9(8), pages 537-539.
    36. Tóth G., Csaba & Virovácz, Péter, 2013. "Winners and Losers – An assessment of the Hungarian flat tax reform with microsimulation," Public Finance Quarterly, Corvinus University of Budapest, vol. 58(4), pages 369-385.
    37. Mike Brewer & Cormac O'Dea, 2012. "Measuring living standards with income and consumption: evidence from the UK," IFS Working Papers W12/12, Institute for Fiscal Studies.
    38. Maciej H. Grabowski, 2005. "Reforms of Tax Systems in Transition Countries," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 12(2), pages 293-312, September.
    39. Pencavel, John H., 1979. "A note on income tax evasion, labor supply, and nonlinear tax schedules," Journal of Public Economics, Elsevier, vol. 12(1), pages 115-124, August.
    40. Yitzhaki, Shlomo, 1974. "Income tax evasion: A theoretical analysis," Journal of Public Economics, Elsevier, vol. 3(2), pages 201-202, May.
    41. Bernardi, Luigi & Fraschini, Angela, 2005. "Tax system and tax reforms in India," POLIS Working Papers 45, Institute of Public Policy and Public Choice - POLIS.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Salvador Barrios & Viginta Ivaškaitė-Tamošiūnė & Anamaria Maftei & Edlira Narazani & Janos Varga, 2020. "Progressive Tax Reforms in Flat Tax Countries," Eastern European Economics, Taylor & Francis Journals, vol. 58(2), pages 83-107, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hanousek, Jan & Lichard, Tomáš & Torosyan, Karine, 2016. "‘Flattening’ the Tax Evasion: Evidence from the Post-Communist Natural Experiment," CEPR Discussion Papers 11229, C.E.P.R. Discussion Papers.
    2. Tomas Lichard & Jan Hanousek & Randall K. Filer, 2012. "Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation," Economics Working Paper Archive at Hunter College 438, Hunter College Department of Economics.
    3. Tomáš Lichard & Jan Hanousek & Randall K. Filer, 2021. "Hidden in plain sight: using household data to measure the shadow economy," Empirical Economics, Springer, vol. 60(3), pages 1449-1476, March.
    4. Karine Torosyan & Randall K. Filer, 2014. "Tax reform in Georgia and the size of the shadow economy," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 22(1), pages 179-210, January.
    5. Ana Cinta G. Cabral & Norman Gemmell & Nazila Alinaghi, 2021. "Are survey-based self-employment income underreporting estimates biased? New evidence from matched register and survey data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(2), pages 284-322, April.
    6. Cabral, Ana Cinta G. & Gemmell, Norman, 2018. "Estimating Self-Employment Income-Gaps from Register and Survey Data: Evidence for New Zealand," Working Paper Series 7625, Victoria University of Wellington, Chair in Public Finance.
    7. David E. A. Giles & Betty J. Johnson, 1999. "Taxes, Risk-Aversion, and the Size of the Underground Economy: A Nonparametric Analysis With New Zealand Data," Econometrics Working Papers 9910, Department of Economics, University of Victoria.
    8. Lindsay Tedds, 2010. "Keeping it off the books: an empirical investigation of firms that engage in tax evasion," Applied Economics, Taylor & Francis Journals, vol. 42(19), pages 2459-2473.
    9. Odd E Nygård & Joel Slemrod & Thor O Thoresen, 2019. "Distributional Implications of Joint Tax Evasion," The Economic Journal, Royal Economic Society, vol. 129(620), pages 1894-1923.
    10. David E.A. Giles & Gugsa T. Werkneh & Betty J. Johnson, 2001. "Asymmetric Responses of the Underground Economy to Tax Changes: Evidence From New Zealand Data," The Economic Record, The Economic Society of Australia, vol. 77(237), pages 148-159, June.
    11. Feige, Edgar L., 2015. "Reflections on the meaning and measurement of Unobserved Economies: What do we really know about the “Shadow Economy”?," MPRA Paper 68466, University Library of Munich, Germany.
    12. Bjørkheim, Julie Brun & Nygård, Odd E., 2024. "Gender Differences in Tax Evasion: Evidence from Norwegian Administrative Data," Discussion Papers 2024/8, Norwegian School of Economics, Department of Business and Management Science.
    13. Matsaganis, Manos & Benedek, Dóra & Flevotomou, Maria & Lelkes, Orsolya & Mantovani, Daniela & Nienadowska, Sylwia, 2010. "Distributional implications of income tax evasion in Greece, Hungary and Italy," MPRA Paper 21465, University Library of Munich, Germany.
    14. Putniņš, Tālis J. & Sauka, Arnis, 2015. "Measuring the shadow economy using company managers," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 471-490.
    15. Schneider Friedrich & Buehn Andreas, 2017. "Shadow Economy: Estimation Methods, Problems, Results and Open questions," Open Economics, De Gruyter, vol. 1(1), pages 1-29, March.
    16. Dóra Benedek & Orsolya Lelkes, 2011. "The Distributional Implications of Income Under‐Reporting in Hungary," Fiscal Studies, Institute for Fiscal Studies, vol. 32(4), pages 539-560, December.
    17. Paulus, Alari, 2015. "Tax evasion and measurement error: An econometric analysis of survey data linked with tax records," ISER Working Paper Series 2015-10, Institute for Social and Economic Research.
    18. Friedrich SCHNEIDER, 2016. "Estimating the Size of the Shadow Economy: Methods, Problems and Open Questions," Turkish Economic Review, KSP Journals, vol. 3(2), pages 256-280, June.
    19. Erlend E. Bø & Joel Slemrod & Thor O. Thoresen, 2015. "Taxes on the Internet: Deterrence Effects of Public Disclosure," American Economic Journal: Economic Policy, American Economic Association, vol. 7(1), pages 36-62, February.
    20. Matsaganis, Manos & Flevotomou, Maria, 2010. "Distributional implications of tax evasion in Greece," LSE Research Online Documents on Economics 26074, London School of Economics and Political Science, LSE Library.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:etrans:v:27:y:2019:i:1:p:223-246. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/ebrdduk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.