Tax Evasion Across Industries: Soft Credit Evidence from Greece
Nikolaos T. Artavanis
University of Massachusetts at Amherst, Isenberg School of Management
University of California, Berkeley - Haas School of Business
University of Chicago - Booth School of Business
March 21, 2015
Chicago Booth Research Paper No. 12-25
Fama-Miller Working Paper
We show that in semiformal economies, banks lend to tax-evading individuals based on the bank's perception of the individual's true income. This observation leads to a novel approach to estimate tax evasion using the adaptation of the private sector to the norms of semiformality. We use bank microdata on household credit, and replicate the bank model of credit capacity decision to infer the bank’s estimate of individuals’ true income. We estimate a lower bound of 28.2 billion euros of unreported income for Greece. The foregone government revenues amount to 32% of the deficit for 2009. Primary tax-evading industries are medicine, law, engineering, education, and media. We provide evidence that tax evasion persists not because the tax authorities are unaware, but because of a lack of paper trail and political willpower. Finally, we speak to the reproducibility and applicability of our private data method in other semiformal settings.
Number of Pages in PDF File: 62
Date posted: July 17, 2012 ; Last revised: April 25, 2015
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