Productivity and Tax Evasion
34 Pages Posted: 22 Jan 2020
Date Written: November 2019
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