Distributional Implications of Joint Tax Evasion

Abstract

Both buyers and sellers of goods and services may bene.t from letting their economic transactions go unrecorded for tax purposes. The supplier reduces his tax burden by underreporting income, whereas the consumer gains from buying a non-taxed lower-priced product. The distributional implications of such joint tax evasion depend on the amounts evaded, on where the evaders on both sides of the market are found in the income distribution and how the financial gain is split between the suppliers and demanders. We use various data sources to identify tax evasion among sellers and buyers of goods and services. Results clearly suggest that the tax-evasion-controlled estimate of income inequality in Norway exhibits more income dispersion than official estimates.

Cheating in Europe: underreporting of self-employment income in comparative perspective

“…Most of the published studies use data from before the mid-2000s although Cabral Table 1 Overview of key studies using the expenditure method. Sources: Updated and revised from Kukk and Staehr (2014) and Paulus (2015); see also Schmutz (2018) Schmutz (2018) and Nygård et al (2019) use datasets with some or all observations from after the global financial crisis and the subsequent recession. The data are typically cross-sectional and different waves are pooled so that the average rate of income underreporting over the sample period is computed.…”

“…Besim and Jenkins (2005), Paulus (2015) and Ekici and Besim (2016) produce estimates where the reference group is restricted to public sector employees. Nygård et al (2019) argue that wage earners that are trained within construction and repair work may even as wage earners be able to underreport their income and therefore leave out these workers from the reference group.…”

“…Staehr (2014, 2017) use a self-reported measure of regular income as an alternative. Other studies produce simplified point estimates by using various additional assumptions; see Besim and Jenkins (2005), Engström and Holmlund (2009), Martinez-Lopez (2013), Hurst et al (2014), Ekici and Besim (2016) and Nygård et al (2019).…”

Problematic response margins in the estimation of the elasticity of taxable income

“…In other words, are there reasons to reject the equal trend assumption of the ETI methodology? One reason, given that high-income selfemployed are more involved in tax evasion than others, see Nygård, Slemrod and Thoresen (2016), could then be new initiatives by the tax administration to reduce evasion. However, we have no priors in this direction, and tax evasion is here assigned to the decompositional part of the ETI.…”

“…As both income and are assumed to be stochastic according toPissarides and Weber (1989), there are more complications involved when obtaining estimates of , discussed with respect to Norwegian data inNygård, Slemrod and Thoresen (2016).…”