Comparing Personal Income Tax Gap in the Czech Republic and the Slovak Republic

Abstract

This paper deals with the personal income tax gap in the Czech Republic and the Slovak Republic. One of its sections specifically addresses the relation between the tax gap and various forms of tax evasion concerning the personal income tax, setting them in the context of its calculation subsequently. The key implication of this paper is the estimation and comparison of the personal income tax gap between the Czech Republic and the Slovak Republic using the income method, broken down to specific types of tax evasion, namely (i) unreported income subject to payroll taxes, (ii) missreported tax base by self-employed individuals (i.e. sole proprietors of unincorporated businesses) and (iii) hidden employment. In line with the existing academic literature, a higher magnitude of the tax gap was found for income reported by self-employed persons (i.e. sole proprietors of unincorporated businesses) than for persons with income from dependent activities (i.e. employment and similar legal concepts).

Keywords: Tax gap; Personal income tax; Czech Republic; Slovak Republic

JEL Classification: H21, H24, H26, K34