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Productivity and Tax Evasion

Era Dabla-Norris, Mark Gradstein, Florian Misch and Fedor Miryugin

No 2019/260, IMF Working Papers from International Monetary Fund

Abstract: The extent of tax compliance has important implications for revenue yield, efficiency and the fairness of any tax system. Tax evasion undermines revenue collection, distorts competition, and undermines a country’s development prospects. In this paper, we investigate whether higher productivity causally leads to lower tax evasion. We first present stylized facts consistent with this view and develop a model that illustrates one potential transmission channel. Second, we test the model predictions at the firm level using the self-reported share of declared income as proxy for tax evasion for a large sample of emerging and developing economies. Our results suggests that productivity improvements by firms can lead to lower tax evasion.

Keywords: WP; firm; firm level; tax evasion propensity; productivity indicator; productivity result; tax-evading firm; firm productivity; Productivity; Tax evasion; Labor productivity; Tax return filing compliance; Tax administration core functions; Middle East; North Africa; Central Asia; East Africa; Central and Eastern Europe (search for similar items in EconPapers)
Pages: 33
Date: 2019-11-27
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