Why do Individuals Evade Payroll and Income Taxation in Estonia?
U of Tartu Economics and Business Administration Working Paper No. 49-2007
40 Pages Posted: 9 Mar 2007
Date Written: February 7, 2007
This paper employs micro-level data to determine the factors characterizing individuals who evade payroll and income taxation in Estonia. Using logit estimation on three different cross-sectional datasets, we estimate the marginal effects of different individual characteristics on tax evasion. The three datasets give broadly analogous results. Payroll and income tax evasion is most prevalent in small firms and in the construction and agricultural sectors. Evasion is more common among individuals who work part-time, are of non-Estonian ethnicity, have relatively short education, earn a low income and are men. Tax evasion is more frequent among the young and the elderly than among the middle-aged. There are clear regional differences. The overall picture is that the relatively disenfranchised are most likely to evade payroll and income taxation in Estonia.
Keywords: tax evasion, unreported work, incentives, tax system
JEL Classification: H26, H24, D19
Suggested Citation: Suggested Citation