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Measuring Income Tax Evasion Using Bank Credit: Evidence from Greece

Author

Listed:
  • Nikolaos Artavanis
  • Adair Morse
  • Margarita Tsoutsoura

Abstract

We document that in semiformal economies, banks lend to tax-evading individuals based on the bank’s assessment of the individual’s true income. This observation leads to a novel approach to estimate tax evasion. We use microdata on household credit from a Greek bank and replicate the bank underwriting model to infer the banks estimate of individuals’ true income. We estimate that 43–45% of self-employed income goes unreported and thus untaxed. For 2009, this implies €28.2 billion of unreported income, implying forgone tax revenues of over €11 billion or 30% of the deficit. Our method innovation allows for estimating the industry distribution of tax evasion in settings where uncovering the incidence of hidden cash transactions is difficult using other methods. Primary tax-evading industries are professional services—medicine, law, engineering, education, and media. We conclude with evidence that contemplates the importance of institutions, paper trail, and political willpower for the persistence of tax evasion. JEL Codes: G21, H22, H24, H26, P37.

Suggested Citation

  • Nikolaos Artavanis & Adair Morse & Margarita Tsoutsoura, 2016. "Measuring Income Tax Evasion Using Bank Credit: Evidence from Greece," The Quarterly Journal of Economics, Oxford University Press, vol. 131(2), pages 739-798.
  • Handle: RePEc:oup:qjecon:v:131:y:2016:i:2:p:739-798.
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    File URL: http://hdl.handle.net/10.1093/qje/qjw009
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    Citations

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    Cited by:

    1. George Hondroyiannis & Dimitrios Papaoikonomou, 2017. "The effect of card payments on vat revenue in Greece," Working Papers 225, Bank of Greece.
    2. Zsófia L. Bárány, 2017. "Taxation and self-employment," LIS Working papers 723, LIS Cross-National Data Center in Luxembourg.
    3. Lahura, Erick, 2017. "Sistema financiero, informalidad y evasión tributaria en el Perú," Revista Moneda, Banco Central de Reserva del Perú, issue 169, pages 24-28.
    4. Tazhitdinova, Alisa, 2015. "Reducing Evasion Through Self-Reporting: Theory and Evidence from Charitable Contributions," MPRA Paper 81612, University Library of Munich, Germany, revised 2017.
    5. Asatryan, Zareh & Peichl, Andreas, 2016. "Responses of firms to tax, administrative and accounting rules: Evidence from Armenia," ZEW Discussion Papers 16-065, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    6. repec:eee:joepsy:v:63:y:2017:i:c:p:27-42 is not listed on IDEAS
    7. repec:eee:eecrev:v:100:y:2017:i:c:p:506-524 is not listed on IDEAS

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • P37 - Economic Systems - - Socialist Institutions and Their Transitions - - - Legal

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