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The purpose of this paper is to explore the association between tax evasion and financial instability. The discussion also examines the effects of tax evasion for financial instability.

This paper is an exploratory study on the effect of tax evasion on financial instability

The paper shows that tax evasion can reduce the tax revenue available to governments to manage the economy and can weaken the government’s ability to promote stability in financial systems, whereas on the contrary, taxpayers who evade taxes feel they can use the evaded tax money to rather improve their own financial stability.

This paper presents the first attempt to carefully examine the association between tax evasion and financial instability.

Most research on tax evasion focused on microeconomic variables revolving around perceptions and decisions of individual taxpayers. However, a new wave of research is now investigating the role of macroeconomic variables in inducing tax evasion. This study adds to the limited studies in this new direction of research. Previous studies found that inflation, low gross domestic product (GDP) growth and gross fixed capital formation causes recession, increases unemployment, raise interest rates, hurts both domestic and foreign direct investments. This study examined the relationship between these variables and estimated tax evasion in Sub-Saharan Africa.

The study adopts a correlation research design with 2,300 data points collected from 23 countries in Sub-Saharan Africa. Specifically, tax to GDP ratio, gross fixed capital formation per GDP and the GDP annual growth report from each country for the period 2011–2020 was retrieved. Generalised least square regression technique was employed to analyse the data due to the presence of heteroskedasticity in the model and random effect was utilized based on the Hausman test. To avoid misspecification and biased result; therefore, all relevant test was conducted including the multicollinearity test.

The results indicate that GDP annual growth and gross fixed capital formation have a significant negative impact on estimated tax evasion in Sub-Saharan Africa. The findings further indicate a negative but insignificant relationship between inflation and estimated tax evasion in Sub-Saharan Africa. The study concludes that both GDP annual growth rate and gross fixed capital formation negatively influence estimated tax evasion and the policy implications in the African continent were discussed.

The new findings on the effects of GDP annual growth, growth fixed capital formation and inflation on estimated tax evasion provide novel knowledge that is currently lacking in the current literature, specifically Sub-Saharan African continent.

This study aims to determine the impact of forensic accounting, probability of detections, tax penalties, government spending, tax justice and tax ethics on value-added tax (VAT) evasion.

The study uses partial least squares-structural equation modeling to examine the connection between tax sanction, probability of detection, tax ethics, tax justice, forensic accounting and government spending on VAT evasion based on 248 responses collected from the retail industry in Jordan.

The findings also demonstrate that there is a negative correlation between tax sanctions, probability of detection, tax ethics, tax justice, forensic accounting, government spending and VAT evasion efficiency.

The results, considering forensic accounting and government expenditure considerations, may emphasize the importance of the tax sanction, probability of detection, tax ethics, adoption of tax justice in the public sector and tax authority. Additionally, the findings are important for regulators and decision-makers in announcing new laws and strategies for VAT evasion.

It turns out that the tax authority and public sector can definitely improve their capacity to protect public funds and limit VAT evasion practices within SMEs by adopting increased tax sanctions, probability of detection, tax ethics, tax justice, forensic accounting and government spending.

Numerous studies have been conducted at the individual level in the context of income tax on the link between tax punishment, probability of detection, tax ethics, tax justice, forensic accounting and tax evasion. This study expands on the scant evidence of this connection to the retail business in the context of VAT avoidance. Additionally, it advances prior studies by integrating fresh elements, such as forensic accounting and government expenditure, that have never been considered in connection to VAT evasion in the retail sector.

This paper aims to determine whether tax evasion savings qualify as unlawful proceeds for money laundering purposes. Litigators, regulators and academics have debated the question for decades. A common argument is that tax evasion allows a bad actor to save money that the perpetrator already has on hand. It does not produce a new inflow of wealth that could properly be classified as proceeds. This paper addresses the validity of this argument by using a substance-based approach.

This paper applies the substance-over-form principle and two specialized judicial doctrines to the matter: the economic-substance and step-transaction doctrines.

This paper finds that in substance, tax evasion savings qualify as unlawful proceeds. The opposing argument may be valid on the surface, but it does not withstand the scrutiny of the substance-based principle and insights from the doctrines.

The finding of this paper implies that any courts which value substance can embrace tax evasion savings as unlawful proceeds. Government prosecutors can adopt the position with confidence that substance backs them up. National regulators can push the point. The United Nations’ Financial Action Task Force can consider the option to more explicitly recommend treating tax evasion savings as unlawful proceeds for money laundering.

Using a unique substance-based approach, this paper demonstrates that a dollar of tax evasion savings is substantively equivalent to a dollar of unlawful tax refund proceeds for money laundering purposes. Focusing on an unlawful tax refund overcomes many of the common concerns raised against the treatment of tax evasion savings as unlawful proceeds.

The purpose of this study is to develop a comprehensive international tax evasion framework by examining how national cultural variables and economic structural variables impact individuals’ tax morale and tax evasion.

This study uses structural equation modeling (SEM) to simultaneously analyze direct and indirect paths between country-level variables, tax morale, and tax evasion.

The results of this study show that multiple cultural and structural level variables directly impact tax evasion. Further, multiple cultural variables indirectly impacts tax evasion via changing individuals’ tax morale attitudes. In that, higher tax morale leads to lower levels of tax evasion. Finally, the analysis demonstrates that tax morale attitudes and tax evasion levels differ significantly in developed countries versus in-transition or developing countries. In addition, the impact of these cultural variables and economic variables on tax morale and tax evasion differ depending on a country’s economic development.

This study further develops an understanding of how various cultural variables and economic variables impact tax evasion. Such that, some of the variables change tax morale attitudes which impacts tax evasion while other variables impact tax evasive behavior directly. This more holistic model can be used by researchers to further explore tax evasion behavior in an international context.

Policy makers should take note of this study when developing strategies to mitigate tax evasive behavior. Specific country characteristics, such as culture and economic structure, will impact how individuals respond to policy (e.g., new laws or penalties).

Tax evasion in developing countries is widespread. However, little attention has been paid to tax evasion in developing countries. This chapter addresses two research questions: RQ1: What are the determinants of tax evasion of Bangladesh? and RQ2: How do the interests of state actors influence tax evasion? The study focused on a developing country with reference to Bangladesh. This is because Bangladesh exhibits one of the smallest tax to GDP ratios in the world. Using quantitative and qualitative interviews, this chapter sheds light on the impact of state actor(s) role on tax evasion over the period 1981–2014. The state actor(s) failed to institutionalize the norms due to political influence. Results provide evidence that lack of enforcement increases tax evasion. The chapter provides a theoretical framework to study determinants of tax evasion.

Purpose — The chapter assesses the linkages between unreported economic activities and different individualistic and non-individualistic motives as perceived by firm management.Design/methodology/approach — The empirical research is based on a survey of the management of firms operating in the Baltic States. The survey contains information on the perceived extent of unreported activities and on a large number of firm-, sector-, and country-specific factors. A principal component analysis identifies clusters of motives for unreported activity. Regression analyses ascertain the importance of motives individually and as principal components on the extent of unreported activities.Findings — Both individualistic and non-individualistic motives are important for the prevalence of unreported activities. The individualist motives refer to the management being solely profit-oriented and self-interested. Among possible non-individualist motives, measures of government performance and perceptions of reciprocity towards the government appear to play important roles for the extent of unreported activities, but broader societal norms may also play a role.Research limitations/implications — The study considers the perceptions that managers have of unreported activities and other features. These perceptions are subjective and subject to substantial uncertainty. All results should be interpreted in light of the subjective nature of the survey answers.Social implications — Taken literally, the results suggest that stronger government performance is associated with a reduction in unreported activities, at least as perceived by the management. Broader societal developments may also be of importance.Originality/value — The inclusion of variables capturing individualistic as well as non-individualistic motives gives a comprehensive picture of factors behind unreported activities. We employ principal component analysis which allows us to cluster individual survey answers and to produce composite measures of different explanatory factors.

This study investigates the tax evasion practices in a lower-middle income economy in South Asia, with specific reference to Bangladesh (which is the only economy within South Asia that had consistent 6% and above gross domestic product (GDP) growth from 2011 to 2013). This study adopted mixed methodology (documentary analyses and a focus group interviews with 20 participants) to reach the overall objective of the research. Using Hofstede et al.’s (2010) cultural theory, the contribution of the study is that the cultural dimension itself cannot correspond to the causes of tax evasion, the other institutional factors (e.g., political connectedness in both private and public sectors, multinational companies (MNC)’s role and corruption, and a lack of public sector accountability and enforcement) are needed to complement the causes of tax evasion. The second major contribution is that Hofstede’s last two dimensions (i.e., short-term and restraint society) can correspond to the preliminary four dimensions (i.e., uncertainty avoidance (UA), masculinity, power distance (PD), and individualism). A restraint society such as Bangladesh is short-term oriented and has established corruption norms and secretive culture. There is also a perception by corporate business that the tax system as unfair and this has major consequences for the poor and the level of trust between the tax authorities and the taxpayers. This study also questions Hofstede’s model application in other developing economies with military and democracy political regimes. The major policy implications include Income Tax Ordinance, the reform of tax administration and enforcement. The novelty of this study rests in the fact that the findings may well inform local and international policymakers (e.g., World Bank, International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD), and the Asian Development Bank (ADB)) regarding how to tackle tax evasion practices in lower-middle income economies like Bangladesh. Further, it fills a gap in the literature exploring tax evasion in a lower-middle income economy – in this case, Bangladesh.

This paper investigates how individuals determine their tax morale levels and tax compliance decisions. Using a questionnaire survey and a multivariate tests procedure, the paper revealed that tax evasion is morally acceptable in Jordan under some circumstances, indeed there could be an affirmative duty to evade taxes since the government is perceived to be highly corrupted. The findings also show that while the extent of the governmental corruption has a positive (negative) effect on tax non-compliance (tax morale), the efficient expenditure of governmental tax revenues has a negative (positive) impact on tax non-compliance (tax morale). The individuals’ tax non-compliance decisions are likewise positively affected by the tax rates and by the taxation system’s being perceived as unjust, but decline with the increase of audit rates and the subsequent penalty rates. The degree and effectiveness of these determinants are dependent on the individual’s level of risk aversion, financial constraints and the surrounding referent groups. The results also confirm that individual factors play a significant role in determining the level of tax morale. Overall, the tax morale level and the compliance decision of an individual are greatly influenced by gender, age, educational level, occupational status and religious background.

The tax evasion phenomenon affects the economic systems of European countries in different ways. The literature shows that individuals provide biased information both to administrative agencies and household surveys. The effects of tax evasion could thus influence the income inequality computed in official statistics.

In this paper, I investigate whether tax evasion generates a bias when inequality indices are computed using household survey data. To achieve this, I apply a parametric model of the Dagum type (three parameters) on the gross personal income of 27 European countries, distinguishing between the self-employed and employees. Subsequently, the parameters computed in the model are used as dependent variables in seemingly unrelated regressions.

I find that for the self-employed, tax evasion tends to reduce inequality as measured by regular wage statistics. Thus, the results reveal that tax evasion distorts inequality indices, generating an underground inequality.