Tax Evasion and Underground Inequality: A Parametric Analysis

Roberto Fantozzi

A chapter in Inequality after the 20th Century: Papers from the Sixth ECINEQ Meeting, 2016, vol. 24, pp 271-305 from Emerald Group Publishing Limited

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.

Keywords: Tax evasion; Dagum function; SUR model; self-employed; underground inequality; H26; D31 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:eme:reinzz:s1049-258520160000024012

DOI: 10.1108/S1049-258520160000024012

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