Tax Evasion Dynamics in the Czech Republic: First Evidence of an Evasional Kuznets Curve

Abstract:     
Using surveys of the Czech Republic taken in 2000, 2002, 2004, and 2006 we measure how the percentage of tax evaders evolved from 1995 until 2006. We find that at first evasion rose, leveled off, and then fell along a quadratic path, suggesting the existence of what we call an evasional Kuznets curve. Our paper is the first to document the existence of an evasional Kuznets curve and to show how it can help improve Markov-chain predictions of tax evasion. We conclude by suggesting that the evasional Kuznets curve may be a subset of a larger trend in evasion for both transitional and developed economies.

Keywords: Underground economy, tax evasion, Markov chains, transition, evasional Kuznets curve

JEL Classifications: H26, H43, K42, O17

Working Paper Series