Self-assessments by respondents in surveys are often the only available measure of tax evasion in developing countries at the microeconomic level. However, they suffer from the reluctance of respondents to reveal their own illicit behavior. This paper evaluates whether this weakness of self-assessments can at least partially be overcome through a novel questioning method, the crosswise model, which allows estimating the prevalence of tax evasion, but not identifying whether the individual respondent engages in tax evasion or not. Using evidence from Serbia, we show that crosswise model-based estimates of the share of firms which significantly underreport sales exceed those obtained from conventional methods by around 10 % points or more. With respect to wage underreporting to evade payroll tax and social security contributions, we do not find differences. These results appear to be robust to a number of modifications, and we explore various potential causes that lead to these results.

Die Dis cus si on Pape rs die nen einer mög lichst schnel len Ver brei tung von neue ren For schungs arbei ten des ZEW. Die Bei trä ge lie gen in allei ni ger Ver ant wor tung der Auto ren und stel len nicht not wen di ger wei se die Mei nung des ZEW dar.Dis cus si on Papers are inten ded to make results of ZEW research prompt ly avai la ble to other eco no mists in order to encou ra ge dis cus si on and sug gesti ons for revi si ons. The aut hors are sole ly respon si ble for the con tents which do not neces sa ri ly repre sent the opi ni on of the ZEW. Non-Technical SummaryWhile there is no doubt that tax evasion is widespread in developing countries, exact measures of its extent are difficult to obtain because, by definition, tax evasion is hidden. However, such estimates are often critical from a policy perspective, for instance to assess the pay-offs of costly countervailing measures. One obvious and potentially timely source of information are taxpayer surveys. However, data on self-reported tax evasion obtained through surveys are typically not reliable. The reason is that survey respondents can be expected to answer questions about tax evasion (or other sensitive topics) not truthfully out of fear of the negative consequences that this may entail if their answers are revealed.To overcome this inherent problem of surveys, sophisticated questioning methods have been developed which protect the privacy of the individual responses by 'bundling' sensitive and non-sensitive questions. In other words, these methods do not allow the interviewer to identify whether, and to what extent, a particular respondent shows the behavior in question. This is likely to provide incentives to the respondent to answer truthfully even if the question is sensitive. At the same time, these questioning methods still allow estimating the prevalence of the sensitive behavior across the whole sample of respondents. These methods have been mostly applied by researchers in sociology and psychology to study topics such as drug use and sexual behavior.The objective of this paper is to evaluate whether a novel questioning method of this type referred to as the crosswise model allows obtaining more reliable estimates about tax evasion through business surveys. The main advantage of the crosswise model is that, compared to similar methods, respondents are not able to resort to an obvious self-protective strategy other than refusal to answer. We compare this method to the conventional approach taken in other business surveys such as the World Bank Enterprise Surveys using data from a rich firm survey in Serbia carried out in November and December 2012. Contrary to most other surveys that examine tax evasion, we also differentiate between two types of tax evasion, namely underreporting of sales and of wages (envelope wages).We randomly split our sample into two subsamples which are almost identical in terms of their industry-size-region distribution. For both subsamples, we estimate the extent of sales and wage underreporting, in one case usi...

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