Income Tax Evasion, Inequality and Poverty
This paper uses a consumer demand based method to estimate the extent to which households in Cyprus under-report their income from self-employment, capital income and income from agriculture. On the basis of these estimates, the size of black economy appears to be around 7–8% of GDP. We find that income under-reporting biases measures of inequality and poverty downwards, suggesting that egalitarian and antipoverty policies need to become more generous, but also more carefully targeted to avoid false entitlement to social benefits. The high tax free income undoubtedly helps reduce the size of the tax evasion problem in Cyprus.
Volume (Year): 2 (2008)
Issue (Month): 2 (December)
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