Tax Evasion in Africa and Latin America : The Role of Distortionary Infrastructures and Policies
This paper examines the impact of the quality of the business environment as well as the monitoring capacity of the tax agency on firms' tax evasion and production decisions. First, the paper uses firm-level data for 30 African and Latin Ameri...
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| Language: | English |
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World Bank, Washington, DC
2018
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| Online Access: | http://documents.worldbank.org/curated/en/937371531333408137/Tax-Evasion-in-Africa-and-Latin-America-the-role-of-distortionary-infrastructures-and-policies http://hdl.handle.net/10986/29995 |
| Summary: | This paper examines the impact of the
quality of the business environment as well as the
monitoring capacity of the tax agency on firms' tax
evasion and production decisions. First, the paper uses
firm-level data for 30 African and Latin American countries
to show that tax evasion and distortions stemming from the
business environment are positively and significantly
correlated, while sales not reported for tax purposes and
institutional quality are negatively and significantly
correlated. Second, the paper develops a general equilibrium
model where heterogeneous firms make tax evasion decisions
based on their assessment of the quality of their business
environment as well as the monitoring capacity of the tax
agency. The model simulations for each country in the
African and Latin American sample show that the model can
explain 35 percent of the variation in tax evasion and more
than 49 percent of the dispersion in output per worker
across the sample countries. Finally, a series of
counterfactual experiments shows that, at the current level
of deterrence, governments could decrease sales not reported
for tax purposes by 21 percent, by reducing distortions
stemming from the business environment by half. The paper
presents empirical supporting evidence consistent with
testable predictions of the model. |
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