Hibbs, Douglas A. (2009): Tax Toleration and Tax Compliance: How Government Affects the Propensity of Firms to Enter the Unofficial Economy. Forthcoming in: American Journal of Political Science
Download (265Kb) | Preview
How do government-supplied institutional benefits and the taxation and regulation of producers affect the propensity of private�firms to enter the unofficial economy and evade taxation? We propose a model in which the incentive of firms to operate underground depends on tax rates relative to �firm-specific thresholds of tax toleration that are decisively affected by quality of governance �in particular by the presence of high-grade institutions delivering services enhancing official production that anchor profit-maximizing firms to the official economy. Some key predictions of the model concerning the determinants of�firms�tax toleration and tax compliance receive broad support from empirical analyses of enterprise-level data from the World Bank's World Business Environment Surveys.
|Item Type:||MPRA Paper|
|Original Title:||Tax Toleration and Tax Compliance: How Government Affects the Propensity of Firms to Enter the Unofficial Economy|
|Keywords:||tax toleration, tax compliance, tax evasion, corruption, quality of government, institutions, unofficial production, black economy, shadow economy, underground economy, micro political economy of firm behavior|
|Subjects:||D - Microeconomics > D2 - Production and Organizations > D21 - Firm Behavior: Theory
H - Public Economics > H0 - General
H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion
|Depositing User:||Douglas A. Hibbs|
|Date Deposited:||26. Jun 2009 06:17|
|Last Modified:||15. Feb 2013 13:53|
Alingham, Michael G., and Agnar Sandmo. 1972. Income Tax Evasion: A Theoretical Analysis. Journal of Public Economics 1(3/4):323-338.
Alm, James, Betty R. Jackson, and Michael McKee. 1993. Fiscal Exchange, Collective Decision Institutions, and Tax Compliance. Journal of Economic Behavior and Organization 22(3):285-303.
Andvig, Jens Chr., and Karl Ove Moene. 1990. How Corruption May Corrupt. Journal of Economic Behavior and Organization 13(1):63-76.
Batra, Geeta, Daniel Kaufmann, and Andrew H.W. Stone. 2003. Investment Climate Around the World: Voices of the Firms from the World Business Environment Survey. World Bank.
Becker, Gary S. , and George J. Stigler. 1974. Law Enforcement, Malfeasance and the Compensation of Enforcers. Journal of Legal Studies 3(1):1-18.
Busato, Franceso, Bruno Chiarini, Pasquale De Angelis, and Elisabetta Marzano. 2008. Firm-Oriented Policies, Tax Cheating and Perverse Outcomes. Department of Economic Studies, University of Naples Parthenope, Discussion Paper 10.
Choi, Jay Pil, andMarcel Thum. 2005. Corruption and the Shadow Economy..International Economic Review 46(3):817-36.
Cummings, Ronald G., Jorge Martinez-Vazquez, Michael McKee, and Benno Torgler. 2005. Effects of TaxMorale on Tax Compliance: Experimental and Survey Evidence. RePEc wpaper (29).
De Soto, Hernandez. 1989. The Other Path. New York: Harper and Row Publishers.
Feld, Lars P., and Bruno S. Frey. 2007. Tax Compliance as the Result of a Psychological Tax Contract: The Role of Incentives and Responsive Regulation. Law and Policy 29(1):102-120.
Friedman, Eric, Simon Johnson, Daniel Kaufmann, and Pablo Zoido-Lobaton. 2000. Dodging the grabbing hand: the determinants of unofficial activity in 69 countries..Journal of Public Economics 76(3):459-493.
Johnson, Simon, Daniel Kaufmann, and Andrei Shleifer. 1997. The Unofficial Economy in Transition. Brookings Papers on Economic Activity 2:159-239.
Johnson, Simon, Daniel Kaufmann, John McMillan, and Christopher Woodru¤. 2000. Why do firms hide? Bribes and unofficial activity after communism. Journal of Public Economics 76(3):495-520.
Johnson, Simon, Daniel Kaufmann, and Pablo Zoido-Lobaton. 1998. Regulatory discretion and the unofficial economy. American Economic Review Papers and Proceedings 88(2):386-392.
Johnson, Simon, John McMillan, and Christopher Woodruff¤. 2002. Courts and Relational Contracts. The Journal of Law, Economics and Organization 18(1):221-277.
Klitgaard, Robert. 1988. Controlling Corruption. Berkeley, CA: University of California Press.
Loayza, Norman. 1996. The economics of the informal sector: a simple model and some empirical evidence from Latin America. Carnegie Rochester Conference Series on Public Policy 45:129-162.
Long, J. Scott , and Jeremy Freese. 2006. Regression Models for Categorical Dependent Variables Using Stata. Second ed. College Station, Texas: Stata Press.
Mookherjee, Dilip, and P.L. Png. 1995. Corruptible Law Enforcers: How Should They Be Compensated?. Economic Journal 105(428):145-159.
Nabin, Munirul Haque, and Gautam Bose. 2008. Partners in Crime: Collusive Corruption and Search. The B.E. Journal of Economic Analysis and Policy 8(1):Article 9.
Pommerehne, Werner W., Albert Hart, and Bruno S. Frey. 1994. Tax Morale, Tax Evasion and the Choice of Policy Instruments in Different Political Systems. Public Finance 49:52-69.
Pommerehne, W.W., and H. Weck-Hannemann. 1996. Tax Rates, Tax Administration and Income Tax Evasion in Switzerland. Public Choice 88(1-2):161-170.
Roberts, Michael L., and Peggy A. Hite. 1994. Progressive Taxation, Fairness and Compliance. Law and Policy 16:27-47.
Rose-Ackerman, Susan. 1978. Corruption: A Study in Political Economy. London/New York: Academic Press.
Sandmo, Agnar. 2005. The Theory of Tax Evasion: A Retrospective View. National Tax Journal 58(4):643-663.
Schloz, John T., and Mark Lubell. 1998. Adaptive Political Attitudes Duty, Trust, and Fear as Monitors of Tax Policy. American Journal of Political Science 42(3):903-920.
Schneider, Friedrich, and Dominik Enste. 2002. The Shadow Economy. An International Survey. Cambridge University Press.
Shleifer, Andrei , and Robert W. Vishny. 1993. Corruption. The Quarterly Journal of Economics 108(3):599-617.
Svensson, Jakob. 2003. Who Must Pay Bribes and How Much? Evidence from a Cross Section of Firms. The Quarterly Journal of Economics 118(1):207-31.