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Article
Publication date: 13 January 2020

Peterson K. Ozili

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…

Abstract

Purpose

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.

Design/methodology/approach

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

Findings

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.

Originality/value

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

Details

Journal of Financial Crime, vol. 27 no. 2
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 20 January 2021

Ahmed Emadeldin Yamen

The purpose of this study is to examine the relationship between tax evasion and COVID-19 public health risk exposure in both high-corruption countries and low-corruption…

Abstract

Purpose

The purpose of this study is to examine the relationship between tax evasion and COVID-19 public health risk exposure in both high-corruption countries and low-corruption countries.

Design/methodology/approach

This study uses cross-sectional data from 138 countries. Tax evasion is measured using the shadow economy size (light intensity approach) as calculated by (Medina and Schneider, 2018). The SolAbility COVID-19 public health risk exposure index (CPHRE) is used to measure COVID-19 health risk. Also, the corruption perception index from transparency international is used for measuring the level of corruption.

Findings

This study finds that the level of tax evasion is positively related to CPHRE. Also, the results revealed a positive relationship between corruption and CPHRE. Furthermore, this study examined the moderation effect of corruption. The results indicate that the positive relationship between tax evasion and public health risk exposure is significant in low-corruption countries, but it is insignificant in high-corruption countries. These results imply that the severity of corruption can increase COVID-19 health risk exposure more than tax evasion.

Practical implications

Our findings are alerting the policymakers for the negative noneconomic consequences of tax evasion and corruption. It provides evidence that tax evasion and corruption can increase CPHRE.

Originality/value

According to the author’s knowledge, this is the first study that examines the relationship between tax evasion and COVID-19 risk and that tests the moderation effect of corruption.

Details

Journal of Financial Crime, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1359-0790

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Book part
Publication date: 18 December 2016

William D. Brink and Thomas M. Porcano

The purpose of this study is to develop a comprehensive international tax evasion framework by examining how national cultural variables and economic structural variables…

Abstract

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).

Details

Advances in Taxation
Type: Book
ISBN: 978-1-78635-001-5

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Book part
Publication date: 28 May 2013

Jaanika Meriküll, Tairi Rõõm and Karsten Staehr

Purpose — The chapter assesses the linkages between unreported economic activities and different individualistic and non-individualistic motives as perceived by firm…

Abstract

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.

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Book part
Publication date: 18 July 2017

Mohammad Nurunnabi

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…

Abstract

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.

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Book part
Publication date: 16 November 2016

Roberto Fantozzi

The tax evasion phenomenon affects the economic systems of European countries in different ways. The literature shows that individuals provide biased information both to…

Abstract

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.

Details

Inequality after the 20th Century: Papers from the Sixth ECINEQ Meeting
Type: Book
ISBN: 978-1-78560-993-0

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Article
Publication date: 18 June 2020

Ahmed Emadeldin Yamen, Hounaida Mersni and Abdulhadi Ramadan

The purpose of this study is to examine the impact of public governance quality on tax evasion levels in old (pre-2004) and new (post-2004) European Union (EU) members…

Abstract

Purpose

The purpose of this study is to examine the impact of public governance quality on tax evasion levels in old (pre-2004) and new (post-2004) European Union (EU) members before and after the 2004 EU-enlargement.

Design/methodology/approach

This study uses panel data of 28 EU countries over the period 1996-2015. Tax evasion is measured using an updated version of the shadow economy size based on the light intensity, as calculated by (Medina and Schneider, 2018). The World Bank’s worldwide governance indicators are used as a measure of public governance.

Findings

The results indicate that new EU members have higher tax evasion levels compared to the old ones before and after the 2004 EU enlargement. The findings also report that the public governance quality is superior in old members throughout the 1996-2015 period. Furthermore, the authors found that after the EU enlargement, tax evasion levels decreased in both EU groups; however, the authors noticed an improvement in the public governance quality in new members and a deterioration in old ones. Additional analysis confirms the impact of public governance quality as an effective tool for reducing tax evasion behavior in both EU groups before and after the EU enlargement.

Practical implications

The findings are potentially useful for EU policymakers in identifying the most effective tools that can minimize tax evasion levels in EU countries. Additionally, the results are alarming as they show the negative consequences of the EU enlargement in old EU members. Thus, policymakers should consider them when setting their rules and regulations to reduce the significant differences between both EU groups to prevent member states from potentially exiting the EU.

Originality/value

To the best of the knowledge, this is the first study that examines the tax evasion behavior and public governance quality in the EU before and after the EU enlargement.

Details

Journal of Financial Crime, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1359-0790

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Article
Publication date: 11 January 2020

Dodik Ariyanto, Gusti Ayu Putu Weni Andayani and I. Gusti Ayu Made Asri Dwija Putri

The purpose of this study is to evaluate the influence of justice, culture and love of money on ethical perceptions about tax evasion. As well as gender will strengthen…

Abstract

Purpose

The purpose of this study is to evaluate the influence of justice, culture and love of money on ethical perceptions about tax evasion. As well as gender will strengthen the influence of justice, culture and love of money on ethical perceptions about tax evasion.

Design/methodology/approach

The primary data were collected and analyzed using a popular component-based model called partial least square (PLS). PLS consists of two sub-models, measurement model or outer model and structural model or inner model. The measurement model shows how real or observable variables are latent variables to be measured. While the structural model shows the level of estimation between latent or construct variables.

Findings

The statistical analysis showed that neither the coefficient of gender (moderating variable) nor the interaction between gender and the exogenous variable are significant. Solimun (2010) explained that such moderating variable is called homologizer moderation (potential moderation). Homologizer moderation refers to variable that may potentially become a moderating variable influencing relationship between predictor (exogenous) and dependant variable (endogenous). This variable has no interaction with predictors or can be said to be insignificant on the dependent variable. In this study, gender is a potential moderating variable (homologizer moderation). Gender can potentially become a moderating variable influencing relationship between justice, culture and love of money and ethical perception on tax evasion. Gender does not have interaction with justice, culture and love of money or significant influence toward ethical perception on tax evasion.

Originality/value

There are very few studies on tax evasion from an ethical point of view so this study is not only important but also interesting because it shows that tax evasion is a classic problem taking place in nearly all countries that apply taxation system; cultural difference results in different views on ethical perceptions on tax evasion (Basri, 2015); this study uses the local wisdom of Balinese people, namely, Tri Hita Karana and thus, this study becomes relatively new; justice is one of the non-economic variables of tax compliance behavior (Darmawan, 2012), so that the researcher is interested in conducting further research on the effect of justice toward ethical perception on tax evasion; there are very few studies discussing love of money (Hnisz et al., 2013); therefore, research on the effect of love of money toward ethical perception on tax evasion is of necessity and the findings of previous studies that are inconsistent. The researcher predicted that there are contingency factors that influence the relationship between justice, culture and love of money toward ethical perceptions on tax evasion. As suggested by Baridwan (2012), gender, the moderating variable in this study, refers to masculine and feminine character as a dimension of social culture; this study is carried out in the Tax Service Office (KPP Pratama) of Badung Utara because during the 2015 tax year, KPP Pratama Badung Utara was one of the KPPs in Bali DGT Regional Office which experienced a decline in realization of revenues and a sharp decline in growth.

Details

Journal of Money Laundering Control, vol. 23 no. 1
Type: Research Article
ISSN: 1368-5201

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Article
Publication date: 7 October 2019

John Kwaku Amoh and Babonyire Adafula

This paper aims to use an econometric model to estimate tax evasion from the size of the underground economy and examined the factors that trigger it.

Abstract

Purpose

This paper aims to use an econometric model to estimate tax evasion from the size of the underground economy and examined the factors that trigger it.

Design/methodology/approach

The study used time series data sourced from world development indicators and Bank of Ghana covering the period 1990-2015 to estimate tax evasion from the underground economy using an autoregressive distributed lag model drawing on the currency demand approach.

Findings

The results confirmed the existence of a large underground economy and a high incidence of tax evasion in Ghana. The Ghanaian situation has been aggravated by an underground economy-triggering factor of mobile money activities, which increased by 83.1 per cent in 2015. Tax evasion averaged 20.78 per cent of GDP over the period. The study, thus, concludes that the increased number of mobile money activities, high tax burden and unemployment contribute to the worsening of the tax evasion problem in Ghana.

Originality/value

The study is one of the premier attempts to introduce electricity power consumption variables in the currency demand model to estimate tax evasion from the size of the underground economy. The authors hypothesize that the emergence of mobile money activities in its current form triggers underground and tax-evading activities. The study, thus, calls for the formalization and regulation of the operations of mobile money activities in emerging economies as a way of managing the underground economy, which incubates tax evasion.

Details

Journal of Money Laundering Control, vol. 22 no. 4
Type: Research Article
ISSN: 1368-5201

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Article
Publication date: 2 July 2019

Simon James, Robert W. McGee, Serkan Benk and Tamer Budak

Numerous studies have been done on various aspects of tax evasion in recent years. Some studies focus on compliance, while others examine more esoteric topics, such as…

Abstract

Purpose

Numerous studies have been done on various aspects of tax evasion in recent years. Some studies focus on compliance, while others examine more esoteric topics, such as optimum tax evasion. A third group of studies discusses theoretical issues, such as when tax evasion can be justified on moral grounds. A few studies have addressed the relative seriousness of tax evasion compared to other infractions. The purpose of this paper is in the latter category.

Design/methodology/approach

Wave 6 of the World Values Surveys (2010-2014) asked hundreds of questions to participants in 57 countries. One of those questions asked whether it was justifiable to evade taxes if one had the opportunity to do so. Another question asked whether it was justifiable to pay cash to avoid paying taxes. It also asked questions about other ethical issues such as bribery, avoiding a fare on public transport, claiming government benefits and buying stolen goods. The present study included those questions in a survey that was distributed to 485 students and faculty members at the University of Exeter in England to determine the relative seriousness of each act. They were asked to select a number from 1 (never justifiable) to 10 (always justifiable) to show the extent of their agreement or disagreement with the commission of the six acts. The goal was to determine how serious tax evasion was compared to other acts that might be considered unethical. One-sample t-test and one-way analysis of variance (ANOVA) methods were used for the data analysis.

Findings

The results of the study show that the act considered least serious was paying cash for services to avoid tax followed in order of seriousness by avoiding a fare on public transport, cheating on taxes if you have a chance, buying stolen goods, claiming benefits without entitlement and, with least justification, accepting a bribe in the course of one’s duty. Some interesting results emerged by examining the responses of different groups. Like other studies, the results indicate older groups tend to have a higher respect for the law than younger ones. This was true for the cheating on taxes possibility, but the 30-49 years age group were more opposed than the other two groups to paying cash for services to avoid taxes. In terms of gender, females were significantly more opposed than males to cheating on taxes if you have a chance. The respondents who are married were more opposed to the six acts, including of course, the two tax ones, than non-married persons. There was also evidence that the level of higher education makes a difference to individuals’ opinions.

Originality/value

This is an important study in relation to England. It is the first study to do so. The relative seriousness of tax evasion is compared to other offenses. Mean scores are used to rank the various offenses in terms of relative seriousness. Various demographics are also examined to see whether some groups view tax evasion as more serious than other groups. Those demographics included gender, age, academic major, education level and marital status.

Details

Journal of Money Laundering Control, vol. 22 no. 3
Type: Research Article
ISSN: 1368-5201

Keywords

1 – 10 of over 2000