Tax Evasion in Firms

22 Pages Posted: 8 Feb 2018

See all articles by Erling Barth

Erling Barth

Institute for Social Research, Norway; Department of Economics, University of Oslo; IZA Institute of Labor Economics

Tone Ognedal

University of Oslo

Date Written: March 2018

Abstract

Tax evasion is low in many countries because third‐party reporting makes employees unable to cheat. Why do not employees collude with their employer to evade taxes or evade as self‐employed? We explain this puzzle in a model in which employees have both options. A trade‐off between large‐scale efficient production and tax evasion implies that tax evasion per employee is decreasing in firm size. The model predicts that there is a gap between the individually and the collectively optimal evasion in firms and that this gap is increasing in firm size. Using survey data, we find support for both predictions.

Suggested Citation

Barth, Erling and Ognedal, Tone, Tax Evasion in Firms (March 2018). LABOUR, Vol. 32, Issue 1, pp. 23-44, 2018, Available at SSRN: https://ssrn.com/abstract=3120078 or http://dx.doi.org/10.1111/labr.12111

Erling Barth (Contact Author)

Institute for Social Research, Norway ( email )

Munthesgate 31
0260 Oslo
Norway

Department of Economics, University of Oslo ( email )

PO Box 6706 St Olavs plass
Oslo, N-0317
Norway

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Tone Ognedal

University of Oslo ( email )

PO Box 6706 St Olavs plass
Oslo, N-0317
Norway

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