Tax gap in the global economy

Abstract

Purpose The purpose of this paper is to present an up-to-date estimation of the tax gaps (TGs) of 35 countries (28 EU member states and 7 additional countries – Australia, Canada, Japan, New Zealand, Turkey, Switzerland and the USA, both as a percentage of the gross domestic product (GDP) and a nominal value (in US$). Design/methodology/approach The authors’ empirical study was carried out on 35 selected countries. To estimate the TG, indirect methodology has been applied, where the basic components used in the estimation procedure are the level of the shadow economy estimated with the multiple indicators multiple causes method, the GDP at current prices (in US$), the total tax rate (TTR) of a given country and the indirect method of follow-up and estimation of lacking data. Findings The basic finding of the research is that the level of the TG is determined individually for a given country and is strongly correlated with the GDP, i.e. if the GDP is high, the TG as the percentage of the GDP is lower in the majority of countries. It is particularly easily noticeable in countries such as the USA (TG – 3.8 per cent of the GDP), the Great Britain (TG – 3.2 per cent of the GDP) or Japan (TG – 4.3 per cent of the GDP). Research limitations/implications A limitation of the adopted research method is the lack of application of direct (supplementary) methods which would include potentially lost contributions from foreign sources and not registered taxpayers. Another research constraint is that the authors’ estimations do not take into account the so-called direct top-down approach based on the VAT Theoretical Total Liability. The weakness of the adopted procedure of estimation is also the use of TTR only instead of comparative approach including tax burdens and average tax rate. Practical implications TG has recently become a hotly debated issue and poses a big challenge to the public finance in many countries. The paper provides some recommendations for the policymakers how to reduce the size of the TG. Social implications Tax evasion and tax avoidance leading to the emergence and expansion of the TG erode the business ethics and distort the rules of fair competition, thus undermining the social trust and moral infrastructure of business transactions. Originality/value One of the major research findings is that 30 per cent of the TG in a given country is determined by the TTR, which – for the first time – provides empirical proof that tax policy (as part of overall economic policy) plays an important role and that it may determine the fiscal effectiveness of a given country.

Social Norms Moderate the Effect of Tax System on Tax Evasion: Evidence from a Large-Scale Survey Experiment

“…10 One of the potential factors behind the difference between our findings and those of Wenzel is a fundamental cultural disparity. His research was carried out in Australia, a setting with a tax gap lower than for virtually every country that we study (e.g., Raczkowski and Mróz 2018). In Australia, unlike in Central and Eastern Europe, the prevalent descriptive norms seem to work in the same direction as do legal sanctions and perhaps this is where the moderating (magnifying) effect found by Wenzel comes from.…”

“…Third, our study is placed in the context where informal institutions are at least as important as formal ones, if not more (Gërxhani 2004a, b;Williams and Horodnic 2015). This is also a context marked by a relatively high prevalence of tax evasion (Gërxhani 2004b, Torgler 2012Raczkowski and Mróz 2018), which makes our theoretical and empirical contribution particularly relevant. Finally, we offer novel evidence on distinct paths through which subjective and descriptive norms affect tax compliance by moderating the impact of the instrumental motivations elicited by tax system parameters.…”

Factors Fostering Shadow Economy Performance in Poland and Lithuania during 2000-2019

“…Therefore, the current taxation regime should be reviewed and improved (Investors' Forum Outlook, 2011). In 2015, the taxation gap in Lithuania was 11 % of GDP (Raczkowski & Mroz, 2018). Undoubtedly, such a situation in Lithuania might show distortions to the principle of equity in taxation.…”

The Role of Taxation in the European Union Sovereign Debt Crisis

“…The research by Raczkowski and Mroz (2018) compares tax gaps among the selected 35 countries including the EU countries. In this research, authors make calculations similar to Murphy (2012).…”