Tax Evasion and the Shadow Economy

Tax Evasion and the Shadow Economy

Edited by Michael Pickhardt and Aloys Prinz

Leading scholars examine recent evidence from theoretical and empirical research on tax compliance and tax evasion, and provide an in-depth analysis of underlying methods. Strategies to fight tax evasion are evaluated and the motivations behind it are explored, as are the impact and size of the shadow economy in Europe. As well as promoting a better understanding of the issues, this book intends to stimulate further debate and, in so doing, broaden the exchange of ideas and concepts.

Chapter 1: The Nature of Tax Evasion and the Shadow Economy

Michael Pickhardt and Aloys Prinz

Subjects: economics and finance, austrian economics, economic crime and corruption, public choice theory, public finance


Michael Pickhardt and Aloys Prinz 1.1 INTRODUCTION Issues such as analysing tax evasion and estimating the size and scope of the shadow economy have received increasing interest among politicians, economists and other social scientists during the last three decades. Yet, despite various methodological advances and a growing amount of empirical evidence, even today there are still large areas of interest that have not been touched at all or where scientific research efforts are just in their infancy (see, e.g., Ahumada et al., 2007, 2008; Breusch, 2005a, 2005b; Feld and Larsen, 2005; Hokamp and Pickhardt, 2010). This volume addresses such issues with a view to contributing to a better understanding of the extent and scope of tax evasion, the shadow economy and their interaction. 1.2 TAX EVASION AND THE SHADOW ECONOMY: COMMON ELEMENTS AND DIFFERENCES The option to earn a higher income seems to be the fundamental motivation for any individual who gets involved in tax evasion or shadow economy activities. The interesting aspect, however, is that this motivational force seems to be independent of the level of income an individual actually earns or may earn without any engagement in either tax evasion or the shadow economy. Therefore we might observe the poor committing social benefit fraud and/or seeking low-skill jobs in the shadow economy and we might observe the rich getting involved in tax evasion or seeking top-level jobs in organized crime or other shadow economy activities. Prominent examples regarding the rich include the Madoff case (USA, organized fraud, 2009)...

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