Table of Contents

Handbook on the Shadow Economy

Handbook on the Shadow Economy

Elgar original reference

Edited by Friedrich Schneider

The shadow economy (also known as the black or underground economy) covers a vast array of trade, goods and services that are not part of the official economy of a country. This original and comprehensive Handbook presents the latest research on the size and development of the shadow economy, which remains an integral component of the economies of most developing and many developed countries.

Chapter 10: Tax Morale, Tax Evasion and the Shadow Economy

Gebhard Kirchgässner

Subjects: economics and finance, economic crime and corruption, labour economics, public finance, law - academic, corruption and economic crime

Extract

Gebhard Kirchgässner 10.1 INTRODUCTION Following a usual distinction, the shadow economy can be divided into three parts: (1) pure tax evasion, that is, legal activities are legally performed but no taxes are paid; (2) the black economy, where legal activities are illegally performed; and (3) criminal, illegal activities.1 Taxes are evaded not only in the first area, but also whenever activities are illegally performed. Thus, activities in the shadow economy are always connected with tax evasion, and factors influencing the latter will also always have an impact on the former. If we put to one side financial psychology which has been all but forgotten today,2 moral factors have scarcely been taken into account when the behaviour of taxpayers has been analysed.3 Following the economic theory of criminal behaviour the extent to which citizens pay or evade taxes depends on a simple cost benefit calculus: the additional income by not paying taxes is compared with the expected punishment, that is, the product of the expected punishment and the probability that this punishment will be executed.4 As many investigations show, this model identifies two important factors, but is unable to explain the behaviour of taxpayers: given the low probability of detection citizens should pay much less tax than they actually do.5 In order to correctly pay their taxes, individuals must have a motivation which includes more than the simple economic calculus; other factors also play an important role. If we still assume that citizens’ behaviour is rational, it has to...

You are not authenticated to view the full text of this chapter or article.

Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.

Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.

Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.

Further information