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Tax evasion, technology, and inequality

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  • James Alm

    (Tulane University)

Abstract

Ensuring compliance with the tax laws is an enduring challenge for all governments. However, the methods by which governments enforce the tax laws, and by which individuals and firms evade their taxes, change over time, due at least in part to changing technology. In this paper I examine how changing technology, especially changes driven by the transformation of information into digital formats for use by computers, seems likely to affect tax evasion in the years ahead. I argue that many of these changes in technology will improve the ability of governments to decrease tax evasion, mainly by increasing the flow of information to governments. However, I also argue that these changes in technology will open up new avenues by which some individuals and some firms can evade (and avoid) taxes. At this point it is unclear which trend will dominate, so that the effects of technology on the overall level of tax evasion are uncertain. Even so, I believe that the distributional effects of these technological changes are more predictable, given the differential effects of technology on the abilities of individuals of different levels and types of income to evade their taxes. Indeed, I argue that changing technology will make evasion increasingly difficult for most taxpayers, especially those subject to employer withholding and third party information reporting, but that evasion will be increasingly viable for a small number of taxpayers, especially very high income taxpayers. Regardless of the overall impact of technology on the level of tax evasion, I conclude that the effects of technology will likely increase economic inequality.

Suggested Citation

  • James Alm, 2021. "Tax evasion, technology, and inequality," Economics of Governance, Springer, vol. 22(4), pages 321-343, December.
  • Handle: RePEc:spr:ecogov:v:22:y:2021:i:4:d:10.1007_s10101-021-00247-w
    DOI: 10.1007/s10101-021-00247-w
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    Cited by:

    1. Xuefeng Shao & Shi Chen, 2024. "Research on Tax Compliance Incentive Effects of Platform Companies from the Perspective of Incomplete Contract – An Empirical Study Based on China," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 26(65), pages 330-330, February.
    2. Okunogbe,Oyebola Motunrayo & Santoro,Fabrizio, 2021. "The Promise and Limitations of Information Technology for Tax Mobilization," Policy Research Working Paper Series 9848, The World Bank.
    3. Oksana N. Harkushenko, 2022. "Prospects of VAT Administration Improvement in Digitalized World: Analytical Review," Journal of Tax Reform, Graduate School of Economics and Management, Ural Federal University, vol. 8(1), pages 6-24.
    4. Strango, Cristina, 2021. "Does digitalisation in public services reduce tax evasion?," MPRA Paper 106856, University Library of Munich, Germany.
    5. Goel, Rajeev K. & Mazhar, Ummad, 2024. "Cryptocurrency use and tax collections: Direct and indirect channels of influence," Journal of Financial Stability, Elsevier, vol. 72(C).
    6. James Alm, 2024. "Tax Compliance, Technology, Trust, and Inequality in a Post-Pandemic World," Working Papers 2404, Tulane University, Department of Economics.
    7. Amzuică Bogdan-Florian & Mititelu Roxana-Adriana & Nișulescu Ileana, 2023. "Digitalization of Business – Implications on Tax Evasion Dimensions," Proceedings of the International Conference on Business Excellence, Sciendo, vol. 17(1), pages 1888-1896, July.
    8. Lompo, Miaba Louise & Ouoba, Marie Madeleine, 2022. "How they hide money? An investigation on tax evasion of large corporations and wealthy taxpayers," MPRA Paper 114235, University Library of Munich, Germany.
    9. Cristina Strango, 2021. "Does Digitalisation in Public Services Reduce Tax Evasion?," Economic Research Guardian, Mutascu Publishing, vol. 11(2), pages 221-235, December.
    10. James Alm, 2024. "Do we have the tools for achieving distributive tax justice?," South African Journal of Accounting Research, Taylor & Francis Journals, vol. 38(3), pages 211-228, September.
    11. repec:tul:wpaper:2306 is not listed on IDEAS
    12. Lompo, Miaba Louise & Ouoba, Marie Madeleine, 2022. "How they hide money? An investigation on tax evasion of large corporations and wealthy taxpayers," MPRA Paper 113410, University Library of Munich, Germany.
    13. Sacco, Pier Luigi & Arenas, Alex & De Domenico, Manlio, 2023. "The political economy of big data leaks: Uncovering the skeleton of tax evasion," Chaos, Solitons & Fractals, Elsevier, vol. 168(C).
    14. Cristina Strango, 2021. "Does Digitalisation in Public Services Reduce Tax Evasion?," Economic Research Guardian, Weissberg Publishing, vol. 11(2), pages 218-232, December.
    15. César Pérez López & María Jesús Delgado Rodríguez & Sonia de Lucas Santos, 2023. "Modelización de los factores que afectan al fraude fiscal con técnicas de minería de datos: aplicación al Impuesto de la Renta en España," Hacienda Pública Española / Review of Public Economics, IEF, vol. 246(3), pages 137-164, September.
    16. Ján Dobroviè & Rastislav Rajnoha & Petr Šuleø, 2021. "Tax evasion in the EU countries following a predictive analysis and a forecast model for Slovakia," Oeconomia Copernicana, Institute of Economic Research, vol. 12(3), pages 701-728, September.

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    More about this item

    Keywords

    Tax evasion; Inequality; Technology; Digitalization;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H22 - Public Economics - - Taxation, Subsidies, and Revenue - - - Incidence
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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