Keeping it off the Books: An Empirical Investigation of Firms that Engage in Tax Evasion
This paper uses a unique and recently available dataset that contains detailed information on firms from around the world to investigate factors that affect under-reporting behaviour by firms. The empirical strategy employed exploits the nature of the dependent variable, which is interval coded, and uses interval regression which provides an asymptotically more efficient estimator than the ordered probit, provided that the classical linear model assumptions hold. These assumptions are investigated using standard diagnostic tests that have been modified for the interval regression model. Evidence is presented that shows that firms in all regions around the world engage in under-reporting. Regression results indicate that government corruption has the single largest causal effect on under-reporting, resulting in the percentage of sales not reported to the tax authority being 53.4 percent higher. Taxes have the second single largest causal effect on under-reporting, resulting in the percentage of sales not reported to the tax authority being 20.2 percent higher. Access to financing, organized crime, political instability and the fairness of the legal system were found to have no effect on under-reporting. It is also found that there is a significant correlation between under-reporting and the legal organization of the business, size, age, ownership, competition and audit controls.
|Date of creation:||Jul 2007|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Tedds, Lindsay, 2005. "The Underground Economy in Canada," MPRA Paper 4229, University Library of Munich, Germany.
- Johnson, Simon & McMillan, John & Woodruff, Christopher, 1999.
"Why do Firms Hide? Bribes and Unofficial Activity After Communism,"
CEPR Discussion Papers
2105, C.E.P.R. Discussion Papers.
- Johnson, Simon & Kaufmann, Daniel & McMillan, John & Woodruff, Christopher, 2000. "Why do firms hide? Bribes and unofficial activity after communism," Journal of Public Economics, Elsevier, vol. 76(3), pages 495-520, June.
- Simon Johnson & Daniel Kaufmann & John McMillan & Christopher Woodruff, 2003. "Why Do Firms Hide? Bribes and Unofficial Activity after Communism," Public Economics 0308004, EconWPA.
- Joulfaian, David & Rider, Mark, 1998. "Differential Taxation and TaxEvasion by Small Business," National Tax Journal, National Tax Association, vol. 51(n. 4), pages 676-87, December.
- Joel Slemrod & Shlomo Yitzhaki, 1996. "The Costs of Taxation and the Marginal Efficiency Cost of Funds," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 172-198, March.
- Orme, Chris, 1990. "The small-sample performance of the information-matrix test," Journal of Econometrics, Elsevier, vol. 46(3), pages 309-331, December.
- Harvey, A C, 1976. "Estimating Regression Models with Multiplicative Heteroscedasticity," Econometrica, Econometric Society, vol. 44(3), pages 461-65, May.
- Per Engstrom & Bertil Holmlund, 2009.
"Tax evasion and self-employment in a high-tax country: evidence from Sweden,"
Taylor & Francis Journals, vol. 41(19), pages 2419-2430.
- Per Engström & Bertil Holmlund, 2006. "Tax Evasion and Self-Employment in a High-Tax Country: Evidence from Sweden," CESifo Working Paper Series 1736, CESifo Group Munich.
- Engström, Per & Holmlund, Bertil, 2006. "Tax Evasion and Self-Employment in a High-Tax Country: Evidence from Sweden," Working Paper Series 2006:12, Uppsala University, Department of Economics.
- Border, Kim C & Sobel, Joel, 1987. "Samurai Accountant: A Theory of Auditing and Plunder," Review of Economic Studies, Wiley Blackwell, vol. 54(4), pages 525-40, October.
- Erard, Brian & Ho, Chih-Chin, 2001. "Searching for ghosts: who are the nonfilers and how much tax do they owe?," Journal of Public Economics, Elsevier, vol. 81(1), pages 25-50, July.
- Roberto Dell’Anno & Miguel Gómez-Antonio & Angel Alañon-Pardo, 2007.
"The shadow economy in three Mediterranean countries: France, Spain and Greece. A MIMIC approach,"
Springer, vol. 33(1), pages 197-197, July.
- Roberto Dell’Anno & Miguel Gómez-Antonio & Angel Pardo, 2007. "The shadow economy in three Mediterranean countries: France, Spain and Greece. A MIMIC approach," Empirical Economics, Springer, vol. 33(1), pages 51-84, July.
- repec:att:wimass:9610 is not listed on IDEAS
- Scotchmer, Suzanne, 1987. "Audit Classes and Tax Enforcement Policy," American Economic Review, American Economic Association, vol. 77(2), pages 229-33, May.
- Mookherjee, Dilip & Png, Ivan, 1989. "Optimal Auditing, Insurance, and Redistribution," The Quarterly Journal of Economics, MIT Press, vol. 104(2), pages 399-415, May.
- Trandel, Greg & Snow, Arthur, 1999. "Progressive income taxation and the underground economy," Economics Letters, Elsevier, vol. 62(2), pages 217-222, February.
- Cremer, H. & Marchand, M. & Pestieau, P., 1988.
"Evading, Auditing And Taxing: The Equity-Compliance Tradeoff,"
401, Cornell - Department of Economics.
- Cremer, H. & Marchand, M. & Pestieau, P., 1990. "Evading, auditing and taxing : The equity-compliance tradeoff," Journal of Public Economics, Elsevier, vol. 43(1), pages 67-92, October.
- Cremer, H. & Marchand, M. & Pestieau, P., 1988. "Evading, auditing and taxing: the equity-compliance tradeoff," CORE Discussion Papers 1988027, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Mark B. Stewart, 1982.
"On Least Squares Estimation When the Dependent Variable is Grouped,"
539, Princeton University, Department of Economics, Industrial Relations Section..
- Stewart, Mark B, 1983. "On Least Squares Estimation When the Dependent Variable Is Grouped," Review of Economic Studies, Wiley Blackwell, vol. 50(4), pages 737-53, October.
- Stewart, Mark B, 1982. "On Least Squares Estimation when the Dependent Variable is Grouped," The Warwick Economics Research Paper Series (TWERPS) 207, University of Warwick, Department of Economics.
- 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.
- Sanchez, Isabel & Sobel, Joel, 1993. "Hierarchical design and enforcement of income tax policies," Journal of Public Economics, Elsevier, vol. 50(3), pages 345-369, March.
- repec:car:carecp:99-11 is not listed on IDEAS
- Andreoni, J. & Erard, B. & Feinstein, J., 1996.
9610r, Wisconsin Madison - Social Systems.
- David Joulfaian, 2000. "Corporate Income Tax Evasion and Managerial Preferences," The Review of Economics and Statistics, MIT Press, vol. 82(4), pages 698-701, November.
- Andreoni, James, 1992. "IRS as loan shark tax compliance with borrowing constraints," Journal of Public Economics, Elsevier, vol. 49(1), pages 35-46, October.
- Watson, Harry, 1985. "Tax evasion and labor markets," Journal of Public Economics, Elsevier, vol. 27(2), pages 231-246, July.
- Geeta Batra & Daniel Kaufmann & Andrew H. W. Stone, 2003. "Investment Climate Around the World : Voices of the Firms from the World Business Environment Survey," World Bank Publications, The World Bank, number 15143.
- Keith J. Crocker & Joel Slemrod, 2004.
"Corporate Tax Evasion with Agency Costs,"
NBER Working Papers
10690, National Bureau of Economic Research, Inc.
- 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.
- Apel,M., 1994. "An Expenditure-Based Estimate of Tax Evasion in Sweden," Papers 1, Uppsala - Working Paper Series.
- 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, 03.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:4213. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht)
If references are entirely missing, you can add them using this form.