Measuring Income Tax Evasion using Bank 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
September 25, 2015
Chicago Booth Research Paper No. 12-25
Fama-Miller Working Paper
We document that in semiformal economies, banks lend to tax-evading individuals based on the bank's assessment of the individual's true income. This observation leads to a novel approach to estimate tax evasion. We use microdata on household credit from a Greek bank, and replicate the bank underwriting model to infer the bank’s estimate of individuals' true income. We estimate that 43%-45% of self-employed income goes unreported and thus untaxed. For 2009, this implies 28.2 billion euros of unreported income, implying foregone tax revenues of over 11 billion euros or 30% of the deficit. Our method innovation allows for estimating the industry distribution of tax evasion in settings where uncovering the incidence of hidden cash transactions is difficult using other methods. Primary tax-evading industries are professional services -- medicine, law, engineering, education, and media. We conclude with evidence that contemplates the importance of institutions, paper trail and political willpower for the persistence of tax evasion.
Number of Pages in PDF File: 66
Keywords: Tax Evasion, Soft Credit
JEL Classification: H26, G21, H00
Date posted: July 17, 2012 ; Last revised: September 28, 2015
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