Three Essays on Tax Compliance and the Estimation of Income-gaps

Abstract

Quoting James Andreoni, `the problem of tax compliance is as old as taxes themselves'. The sources of missing tax revenues have traditionally concerned tax administrations and particularly now in times when public finances are striving. In the quest for analysing the revenue that is foregone, tax administrations have started to produce a report of their tax gap, understood as the difference between the theoretical tax liability and the actual collection, to obtain a measure of the extent of non-compliance.

Due to the complexity of the non-compliance behaviour and the lack of visibility of certain types of income, different methods are usually put in place in order to offer a plausible range for the estimates. This dissertation dedicates its two first chapters to providing an alternative method for estimating the income-gap (de fined to be one minus the proportion of reported to actual income) for two populations: the self-employed and the employees. The underlying data used for both cases is publicly available survey data on expenditures and income that is generated on a timely manner. This carries substantial advantages. First, relying on a general purpose survey dataset means that the estimation can be updated more frequently than if it was to rely solely on either the timing of administrative data or on survey data that is speci fically targeted to measure non-compliance. Second, it provides an alternative estimation using an independent source of data which allows for the triangulation of the estimate obtained using administrative sources. Third, it allows tax administrations which do not have readily available administrative data to perform estimations using a type of survey widespread available in most countries.

The third chapter of this thesis explores the role of the extrinsic and intrinsic incentives in explaining engagement in the hidden economy defined as undeclared work practices. This chapter contributes firstly to the literature on shadow economy and to the debate of whether crowding effects are found between extrinsic and intrinsic motivations in a tax environment.