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The Effect of Awareness and Incentives on Tax Evasion

  • Annette Alstadsæter
  • Martin Jacob

We examine the role of tax incentives, tax awareness, and complexity in tax evasion. We observe a specific type of tax evasion among business owners in Swedish administrative panel data, after the tax authority has approved all tax returns. For the period 2006–2009, approximately 5% of tax returns overstate a claimed dividend allowance. Tax awareness decreases and complexity increases the likelihood of misreporting. Our results indicate that some observed misreporting could be accidental, while some misreporting is deliberate tax evasion. We identify a positive and significant effect of tax rates on tax evasion, by exploiting a large kink in the tax schedule. The majority of misreporting cases remains undetected by the tax authority. Self-correction of tax evasion by taxpayers is the dominant type of detection.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4369.

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Date of creation: 2013
Date of revision:
Handle: RePEc:ces:ceswps:_4369
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