'Flattening' the Tax Evasion: Evidence from the Post-Communist Natural Experiment

28 Pages Posted: 18 Apr 2016

See all articles by Randall K. Filer

Randall K. Filer

City University of New York, CUNY Hunter College - Department of Economics; Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute); University of Michigan at Ann Arbor - The William Davidson Institute; CESifo (Center for Economic Studies and Ifo Institute)

Jan Hanousek

CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute); Charles University in Prague; Academy of Sciences of the Czech Republic; Centre for Economic Policy Research (CEPR)

Tomas Lichard

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute)

Karine Torosyan

Tbilisi State University (TSU)

Date Written: April 2016

Abstract

We analyze the response of tax evasion to the introduction of a flat tax in several transition economies. Using a novel estimator based on household level data, we show that in most of the studied countries there was no discernible effect on the measured size of unreported income following flat tax reform. This may imply that decreases in marginal tax rate may frequently have been accompanied by parallel deterioration in attitudes towards public services and these countries' government in general as the only countries that show a response to the flat tax reform appear to be those where satisfaction with government services increased. Additionally, our results show a pro-cyclicality of the size of the shadow economy that is in line with previous research.

Keywords: consumption-income gap, Flat tax, tax evasion, tax reform, underreporting

JEL Classification: C34, H26

Suggested Citation

Filer, Randall K. and Hanousek, Jan and Lichard, Tomas and Torosyan, Karine, 'Flattening' the Tax Evasion: Evidence from the Post-Communist Natural Experiment (April 2016). CEPR Discussion Paper No. DP11229. Available at SSRN: https://ssrn.com/abstract=2766557

Randall K. Filer (Contact Author)

City University of New York, CUNY Hunter College - Department of Economics ( email )

695 Park Avenue
Hunter West 1502
New York, NY 10021
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212-772-5499 (Phone)

HOME PAGE: http://econ.hunter.cuny.edu/faculty/filer/

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic
42 02 240 05 213 (Phone)
42 02 242 27 143 (Fax)

HOME PAGE: http://www.cerge-ei.cz

University of Michigan at Ann Arbor - The William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Jan Hanousek

CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

Politickych veznu 7
Prague 1, 111 21
Czech Republic
420 2 2400 5119 (Phone)
420 2 2421 1374 (Fax)

HOME PAGE: http://www.cerge-ei.cz

Charles University in Prague ( email )

Celetná 13
Praha 1, 116 36
Czech Republic

Academy of Sciences of the Czech Republic ( email )

Narodni 3, 111 42
Praha 1, 117 20
Czech Republic

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Tomas Lichard

Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

P.O. Box 882
7 Politickych veznu
Prague 1, 111 21
Czech Republic

HOME PAGE: http://www.cerge-ei.cz

Karine Torosyan

Tbilisi State University (TSU) ( email )

Tbilisi
Georgia

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