Tax Evasion and Self-Employment in a High-Tax Country: Evidence from Sweden

22 Pages Posted: 13 Jun 2006

See all articles by Per Engström

Per Engström

Uppsala University - Department of Economics

Bertil Holmlund

Uppsala University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Date Written: May 2006

Abstract

Self-employed individuals have arguably greater opportunities than wage earners to underreport their incomes. The incentives for underreporting should be especially strong in an economy with generally high taxes. This paper uses recent income and expenditure data to examine the extent of underreporting of income among self-employed individuals in Sweden. A key hypothesis is that underreporting of incomes among the self-employed would be visible in the data as "excess food consumption," for a given level of observed income. Our results confirm the underreporting hypothesis. In particular, we estimate that households with at least one self-employed member underreport their total incomes by around 30 percent. Underreporting appears to be twice as prevalent among self-employed people with unincorporated businesses as among those with incorporated businesses.

Keywords: tax evasion, self-employment, Engel curves

JEL Classification: D12, H24, H25, H26

Suggested Citation

Engström, Per and Holmlund, Bertil, Tax Evasion and Self-Employment in a High-Tax Country: Evidence from Sweden (May 2006). CESifo Working Paper Series No. 1736. Available at SSRN: https://ssrn.com/abstract=908512

Per Engström

Uppsala University - Department of Economics ( email )

Box 513
SE-75120 Uppsala
Sweden
+46 - 18 - 471 15 65 (Phone)
+46 - 18 - 471 14 78 (Fax)

HOME PAGE: http://www.nek.uu.se/cgi/staffpage.pl?PId=13,lang=eng

Bertil Holmlund (Contact Author)

Uppsala University - Department of Economics ( email )

SE-75120 Uppsala
Sweden
+46 18 471 1122 (Phone)
+46 18 471 1478 (Fax)

HOME PAGE: http://www.nek.uu.se/faculty/holmlund/index.html

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

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

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