Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/203905 
Year of Publication: 
2006
Series/Report no.: 
wiiw Working Paper No. 40
Publisher: 
The Vienna Institute for International Economic Studies (wiiw), Vienna
Abstract: 
This study computes estimates of tax compliance in selected European countries for value added tax, excise tax, personal income tax and social security contributions, using national accounts data together with data on official tax structures and revenues. These estimates are then analysed to explain the differences in compliance rates across European countries and across time. In accordance with the classical models of Allingham-Sandmo and their successors, we find that tax evasion is positively correlated with the tax rate itself. However, we also find support for Bloomquist's hypothesis that higher income inequality leads to higher tax evasion. We also find that the quality of the judicial system plays a role in explaining VAT evasion, confirming general hypotheses on the main drivers of the shadow economy. Finally, we find that our chosen measure of tax complexity is positively correlated with tax compliance for personal income tax, leading us to doubt the soundness of 'flat tax' reforms in transition countries, at least with respect to their impact on compliance.
Subjects: 
taxation
tax compliance
tax evasion
income inequality
tax complexity
flat tax
transition economies
JEL: 
C80
H26
H30
Document Type: 
Working Paper

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