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Measuring Income Tax Evasion using Bank Credit: Evidence from Greece

66 Pages Posted: 17 Jul 2012 Last revised: 28 Sep 2015

Nikolaos T. Artavanis

University of Massachusetts at Amherst, Isenberg School of Management

Adair Morse

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Margarita Tsoutsoura

Cornell University

Multiple version iconThere are 2 versions of this paper

Date Written: September 25, 2015

Abstract

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.

Keywords: Tax Evasion, Soft Credit

JEL Classification: H26, G21, H00

Suggested Citation

Artavanis, Nikolaos T. and Morse, Adair and Tsoutsoura, Margarita, Measuring Income Tax Evasion using Bank Credit: Evidence from Greece (September 25, 2015). Chicago Booth Research Paper No. 12-25; Fama-Miller Working Paper. Available at SSRN: https://ssrn.com/abstract=2109500 or http://dx.doi.org/10.2139/ssrn.2109500

Nikolaos T. Artavanis

University of Massachusetts at Amherst, Isenberg School of Management ( email )

121 Presidents Drive
Amherst, MA 01003
United States

Adair Morse

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Margarita Tsoutsoura (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

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