Productivity and Tax Evasion
34 Pages Posted: 22 Jan 2020
Date Written: November 2019
Abstract
The extent of tax compliance has important implications for revenue yield, efficiency and the fairness of any tax system. Tax evasion undermines revenue collection, distorts competition, and undermines a country's development prospects. In this paper, we investigate whether higher productivity causally leads to lower tax evasion. We first present stylized facts consistent with this view and develop a model that illustrates one potential transmission channel. Second, we test the model predictions at the firm level using the self-reported share of declared income as proxy for tax evasion for a large sample of emerging and developing economies. Our results suggests that productivity improvements by firms can lead to lower tax evasion.
Keywords: Total factor productivity, National income, Tax revenue, Tax evasion, Labor productivity, Economic Development, Firm Productivity, WP, average productivity, self-employment, OLS, tax purpose, evasion
JEL Classification: D20, H26, O47, E01, H2, K34, H83, O4
Suggested Citation: Suggested Citation