Tax Compliance and Tax Evasion

Abstract

Tax evasion is widespread, always has been, and probably always will be. Variations in duty and honesty can explain some of the across-individual and, perhaps, across-country heterogeneity of evasion. But the stark differences in compliance rates across taxable items that line up closely with detection rates suggest strongly that deterrence is a power factor in evasion decisions. Although the normative theory of taxation has been extended to tax system instruments such as the intensity of enforcement, the empirical knowledge for operationalizing these rules is sparse.