Tax Evasion Across Industries: Soft Credit Evidence from Greece

73 Pages Posted: 14 Sep 2015 Last revised: 14 Apr 2016

See all articles by Nikolaos T. Artavanis

Nikolaos T. Artavanis

University of Massachusetts Amherst - Department of Finance

Adair Morse

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

Margarita Tsoutsoura

Cornell University; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: September 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 banks 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.

Suggested Citation

Artavanis, Nikolaos T. and Morse, Adair and Tsoutsoura, Margarita, Tax Evasion Across Industries: Soft Credit Evidence from Greece (September 2015). NBER Working Paper No. w21552. Available at SSRN: https://ssrn.com/abstract=2660011

Nikolaos T. Artavanis (Contact Author)

University of Massachusetts Amherst - Department of Finance ( 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

Cornell University ( email )

Ithaca, NY 14853
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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