The hidden costs of tax evasion: collaborative tax evasion in markets for expert services

Loukas Balafoutas, Adrian Beck, Rudolf Kerschbamer and Matthias Sutter

No ECO2014/01, Economics Working Papers from European University Institute

Abstract: In markets where transactions are governed by contractual incompleteness, revealed intentions to evade taxes may affect market performance. We experimentally examine the impact of tax evasion attempts on the performance of credence goods markets, where contractual incompleteness results from asymmetric information on the welfare maximizing quality of the good. We find that tax evasion attempts – independently of whether they are successful or not – lead to efficiency losses in the form of too low quality and less frequent trade. Thus, shadow economies induce an excess burden not only by hampering the collection of tax revenues, but also by reducing market efficiency.

Keywords: Credence goods; expert services; tax evasion; fraud; experiment (search for similar items in EconPapers)
JEL-codes: C72 C91 D82 H26 (search for similar items in EconPapers)
Date: 2014
New Economics Papers: this item is included in nep-cta, nep-exp and nep-iue
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The Hidden Costs of Tax Evasion: Collaborative Tax Evasion in Markets for Expert Services (2015)
Working Paper: The Hidden Costs of Tax Evasion - Collaborative Tax Evasion in Markets for Expert Services (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eui:euiwps:eco2014/01

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