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Article
Publication date: 28 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…

1547

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

Keywords

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

Keywords

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.

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.

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

Keywords

Article
Publication date: 18 June 2021

Deen Kemsley, Sean A. Kemsley and Frank T. Morgan

This paper aims to define the fundamental nexus between income tax evasion and money laundering. The G7 Financial Action Task Force (FATF) designates tax evasion as a…

Abstract

Purpose

This paper aims to define the fundamental nexus between income tax evasion and money laundering. The G7 Financial Action Task Force (FATF) designates tax evasion as a predicate offense for money laundering. We determine whether this designation is complete from a conceptual standpoint, or whether there is a stronger connection between tax evasion and money laundering.

Design/methodology/approach

This paper applies the FATF definition for money laundering – as well as generally accepted definitions for tax evasion and for a standard predicate offense – to identify the necessary conditions for each crime. This paper then uses these conditions to test opposing hypotheses regarding the nexus between tax evasion and money laundering.

Findings

This paper demonstrates that tax evasion does not meet the conditions for a standard predicate offense, and treating it as if it were a standard predicate could be problematic in practice. Instead, it is concluded that the FATF’s predicate label for tax evasion, together with tax evasion methods and objectives, imply that all tax evasion constitutes money laundering. In a single process, tax evasion generates both criminal tax savings and launders those criminal proceeds by concealing or disguising their unlawful origin.

Practical implications

The FATF could strengthen its framework by explicitly defining all tax evasion as money laundering. This would enable regulatory agencies to draw upon the full combined resources dedicated to either offense.

Originality/value

The analysis demonstrates that tax evasion completely incorporates money laundering as currently defined by the FATF.

Details

Journal of Financial Crime, vol. 29 no. 2
Type: Research Article
ISSN: 1359-0790

Keywords

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. 28 no. 4
Type: Research Article
ISSN: 1359-0790

Keywords

Article
Publication date: 2 October 2017

Georgios L. Vousinas

This paper aims to bring into surface two major socioeconomic problems of Greece, tax evasion and shadow economy.

1068

Abstract

Purpose

This paper aims to bring into surface two major socioeconomic problems of Greece, tax evasion and shadow economy.

Design/methodology/approach

It examines the determinants and the factors that led to the formation and expansion of tax evasion and subsequently of black economy. Empirical data and related research are used to provide a clearer view of the existing situation.

Findings

Tax evasion and shadow economy are proved to remain two of the most severe problems that torture Greek economy. The factors that contribute the most to the formation of these phenomena are the lack of tax awareness, the tax burden, the structure of the tax system, the role of the state, the level of approvement of public authority, self-employment, unemployment and the level of organization of the economy. Except from the negative characteristics, positive ones are also identified, and certain policies are suggested so as to combat tax evasion and black economy.

Originality/value

The paper highlights two major issues that constitute the deadly weakness of the Greek economy, providing a holistic view of the current situation, identifying the roots of the problem and suggesting specific measures.

Details

Journal of Money Laundering Control, vol. 20 no. 4
Type: Research Article
ISSN: 1368-5201

Keywords

Article
Publication date: 3 October 2016

Derek Adetokunbo Obadina

This paper aims to examine the Nigeria’s approach for tackling tax evasion, the limitations of double tax conventions for that purpose, the benefits of multilateral…

1067

Abstract

Purpose

This paper aims to examine the Nigeria’s approach for tackling tax evasion, the limitations of double tax conventions for that purpose, the benefits of multilateral instruments/standards for automatic exchange of tax information and Nigeria’s ability to participate in such arrangements.

Design/methodology/approach

This paper is a library-based research, deploying content analysis with respect to books, law reports, law journals and newspapers.

Findings

Nigeria has taken significant steps to deal with domestic tax evasion by tightening anti-money laundering legislation, principally by making tax evasion a predicate offence and by imposing relating reporting obligations on financial institutions and a wide range of designated non financial institutions (DNFI's), but cross-border tax evasion remains a big problem owing to a limited network of double tax conventions (DTCs) and inherent limitations of the machinery in limiting exchange of information to distinct requests. Nigeria’s ability to benefit from new international standards providing for automatic exchange is compromised by the absence of robust rules with respect to taxpayer confidentiality and data protection.

Research limitations/implications

Because the research focused on Nigeria, the findings of the study might not be applicable to other jurisdictions.

Originality/value

Given the devastating effects of tax evasion on development in Nigeria and the priority accorded to the eradication of the problem in the sustainable development goals, this paper meets a need to determine the extent of sufficiency of Nigeria’s legal and regulatory framework in enabling the country to tackle tax evasion.

Details

Journal of Money Laundering Control, vol. 19 no. 4
Type: Research Article
ISSN: 1368-5201

Keywords

Article
Publication date: 3 October 2016

Azhar Mohamad, Mohd Hasrol Zakaria and Zarinah Hamid

The purpose of this study is to investigate the relationship between tax evasion and certain demographic factors such as location, engagement of tax agent, size and type…

3277

Abstract

Purpose

The purpose of this study is to investigate the relationship between tax evasion and certain demographic factors such as location, engagement of tax agent, size and type of small- and medium-sized enterprises (SMEs) industry in Malaysia.

Design/methodology/approach

In this study, using proprietary tax audit data from the Inland Revenue Board of Malaysia (IRBM) on the 2011 tax returns of SMEs, the authors run a multiple regression analysis to examine the impact of location, agent, type of industry, size of enterprise and type of tax evasion on SMEs’ tax evasion in Malaysia.

Findings

The authors find that tax evasion among SMEs in Malaysia is the highest when the business is located in a suburban environment and has no tax agent. Tax evasion is also influenced by the size of the SME (micro or medium).

Originality/value

This study gives insight that the IRBM can use to aid its collection department in profiling SMEs that have a higher tendency to evade paying tax.

Details

Journal of Financial Crime, vol. 23 no. 4
Type: Research Article
ISSN: 1359-0790

Keywords

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