The Effect of Economic Freedom on Tax Evasion and Social Welfare: An Empirical Evidence

Abstract

The purpose of this study is to analyze the effect of economic freedom on tax evasion and on social welfare level. According to the estimate results obtained with the analyses, economic freedom variable has a negative effect on tax evasion in all countries (Total), developed, developing, EU (European Union) member countries, and OECD (Organisation for Economic Cooperation and Developmen) member countries. This negative effect has statistical significance in all countries (Total), developed countries and OECD member countries except for the EU member, and developing countries. For this reason, the increase in the economic freedom level in these countries causes that tax evasion is reduced. On the other hand, economic freedom variable, which affects tax evasion in a negative manner, has a positive effect on social welfare level. This positive effect of economic freedom is statistically significant in each country group included in the analyses. In this respect, the increase in the economic freedom level causes that the social welfare level is increased.

Cryptocurrencies-tax evasion nexus: Does economic performance matter? The case of G-7 countries

“…Besides macroeconomic factors and cryptocurrencies, economic freedom is also a significant determinant of tax evasion with extensive literature support (Achek, 2015;Alabede, 2018;Islam, Rashid, Hossain, & Hashmi, 2020;Matusiak, 2018;Nurunnabi, 2018;Picur & Riahi-Belkaoui, 2006;Riahi-Belkaoui, 2004;Ryšavá & Zídková, 2021;Tekin, Güney, & Sağdiç, 2018). Economic freedom is measured using multiple indicators: Government Integrity, Government Spending, Business Freedom, Labor Freedom, Monetary Freedom, Trade Freedom, Investment Freedom, and Financial Freedom.…”

“…Literature supports the role of economic freedom indicators as predictors of tax evasion. However, the association of interaction terms is not given significant importance (Achek, 2015;Alabede, 2018;Islam et al, 2020;Matusiak, 2018;Nurunnabi, 2018Nurunnabi, , 2019Picur & Riahi-Belkaoui, 2006;Riahi-Belkaoui, 2004;Ryšavá & Zídková, 2021;Tekin et al, 2018). As Bitcoin's existence is persistent, the overall impact of Financial Freedom is positive for the economy.…”