Investigation of the relationship between macro-economic variables and tax evasion using nonlinear approaches

Document Type : RESEARCH PAPER

Authors

1 Ph.D. in economics, Department of Economics, Faculty of Economics and Administration, University of Lorestan, Khoramabad, Iran.

2 Associate Professor, Department of Economics, Faculty of Economic and Administrative Sciences, University of Qom, Qom, Iran

Abstract

The main purpose of present study is to investigate the relationship between macroeconomic variables and tax evasion using nonlinear approaches. . First of all, it was used Markov Switching Vector Autoregression method, statistics and information from 1969 to 2019 to find Kuznets’s hypothesis and nonlinear relationship between macro-economic variables and tax evasion, annually. Then, after confirming the existence of a nonlinear relationship, the Threshold Vector Autoregression was also used for further investigation. According to the results of the markov-switching, the existence of the Kuznets's law between per capita GDP and tax evasion is confirmed. Therefore, in order to reduce tax evasion, it is necessary to reduce the share of oil in GDP and increase the share of productivity in production. For variables of direct burden tax, public education expenditure, Government expenditure omitting education expenditure, Gini coefficient and currency outside the bank, Kuznets law is rejected. However, the existence of a nonlinear relationship is confirmed. Also, tax evasion, GDP per capita, direct tax burden and currency outside the bank was used for Threshold Vector Autoregression model. Tax evasion was selected as threshold variable and The threshold value of the tax evasion was specified 21906/1 Milliard Rials.The results of the Threshold Vector Autoregression model show that the impulses of per capita GDP and currency outside the bank have the greatest effect on increasing tax evasion. The results of the Threshold Vector Autoregression model show that the impulses of per capita GDP and currency outside the bank have the greatest effect on increasing tax evasion.

Keywords

Main Subjects

References

Aghajani, H., Karimi Tekanlou, Z., & Davodzadeh, S. (2022). Investigating the nonlinear effect of nonBank financial development on economic growth in Iran: The Markov-Switching Approach. Stable Economy Journal, 3 (2), 130-154. DOI: 10.22111/SEDJ.2022.42717.1215. (In Persian).
Allingham, M., & Sandmo, A. (1972). Income tax evasion: A theoretical analysis. Journal of Public Economics, 1(3-4), 323-338. DOI: https://doi.org/10.1016/0047-2727(72)90010-2
Alm, J. (2021). Tax evasion, technology, and inequality. Economics of Governance, 22, 321-343. DOI: https://doi.org/10.1007/s10101-021-00247-w
Amin Khaki, A. (2012). Estimating Tax Evasion and its Determinants in the Iranian Economy. University of Mazandaran. (In Persian).
Antón, A., Hernández-Trillo, F. & Ventosa-Santàul aria, D. (2021). (In) Effective tax enforcement and demand for cash. J. Macroecon. 70, 103350. DOI: https://doi.org/10.1016/j.jmacro.2021.
Ardizzi, G., Petraglia, C., Piacenza, M. & Turati, G. (2014b). Measuring the underground economy with the currency demand approach: a reinterpretation of the methodology, with an application to Italy. Rev. Income Wealth, 60 (4), 747–772. DOI: https://doi.org/10.1111/roi w.12019
Argentiero, A., Sandro, C., Mittone, L., & Morreale, A. (2021). Tax evasion and inequality: some theoretical and empirical insights. Economics of Governance, 22, 309-320. DOI: https://doi.org/10.1007/s10101-021-00261-y
Balke, N. S. (2000). Credit and economic activity: Credit regimes and nonlinear propagation of shocks. The review of economics and statistics, 82(2), 344-349. DOI: https://doi.org/10.1162/rest .2000.82.2.344
Berrittella, M. (2015). The Effect of public education expenditure on shadow economy: A Cross-Country analysis. International Economic Journal (Published Online). DOI: https://doi.org/10.1080/10168737.2015.1081259
Bertotti, M. L., & Modanese, G. (2014). Micro to macro models for income distribution in the absence and the presence of tax evasion. Applies Mathematics and Computation, 244, 836-846. DOI: https://doi.org/10.1016/j.amc.2014.07.055
Besley, T., & Persson, T. (2014). Why do developing countries tax so little? Journal of Economic Perspectives, 28(4), 99-120. DOI:10.1257/jep.28.4.99
Bethencourt, C., & Kunze, L. (2020). Social norms and economic growth in a model with labor and capital income tax evasion. Economic Modelling, 86, 170-182. DOI: https://doi.org/10.1016/j.econmod. 2019.06.009
Brunnermeier, M.K., James, H. & Landau, J.P. (2021). The digitalization of money (No. 941). BIS Working Papers.
Bussy, A. (2023). Corporate tax evasion: Evidence from international trade. European Economic Review, 159, 104571. DOI: https://doi.org/10.1016/ j.euroecorev.2023.104571
Chaman, T., Mohajeri, P. & Arabmazar Yazdi, A. (2019). The Impact of Financial Development on Tax Evasion in Iran. Journal of Economic Research, 19(72), 105-139. (In Persian). DOI: https://doi.org/10.22054/joer .2019.10156
Célimène, F., Dufrénot, G., Mophou, G., & N'Guérékata, G. (2016a). Tax evasion, Tax corruption, and stochastic growth. Economic Modelling, 52, 251-258. DOI: https://doi.org/10. 1016/j.econmod.2014.10.055
Ⅾ'Agostino, E., De Benedetto, M. A., & Sobbrio, G. (2021). Tax evasion and government size: evidence from Italian provinces. Economic Politica, 38, 1149-1187. DOI: https://doi.org/10.10 07/s40888-021-00227-7.
Degl’Innocenti, D. G., Levaggi, R. & Menoncin, F. (2022). Tax avoidance and evasion in a dynamic setting. Journal of Economic Behavior and Organization, 204, 443-456. DOI: https://doi.org/10.1016/j.jebo.2022.10.028
D’Souza, E. (2016). A theory of tax evasion in developing countries Errol D’Souza W.P. no. 2016-03-37 March 2016. India Institute Of Management.
Duncan, D. (2014). Behavioral responses and the distributional Effects of the Russian ‘flat’ tax. Journal of Policy Modeling, 36(2), 226-240.  DOI: https://doi.org/10.1016/j.jpolmod.2014.01. 011
Engel, C., Mittone, L. & Morreale, A. (2020). Tax morale and fairness in conflict an experiment. Journal of Economic Psychology, 81,102314. DOI: https://doi.org/10.1016/j.joep.2020.102314
Gilak, M.T., Karimi Petanlar, S., Jafari Samimi, A., & Aminkhaki, A. (2012). The Nonlinear effect of effective tax rate and tax evasion in Iran. American Journal of Scientific Research, 46, 43-46.
Gordon, R., & Lee, Y. (2005). Tax structure and economic growth. J. Public Econ, 89(5-6), 1027-1043. DOI: https://doi.org/10.1016/j.jpubeco.2004.07.002
Hanousek, J., & Palda, F. (2015). The evasional Kuznets Curve: A Possible shadow economy dynamic during the transition. Japanese Journal of Comparative Economies, 52(1), 1-17. DOI: https://doi.org/10.5760/jjce.52. 1_1
Hansen, B. E. (1996). Inference when a nuisance parameter is Not identified under the null hypothesis. Econometrica, 64(2), 413-430.
Heidarzadi, H., Khodapanah, M., & Montazer Hojat, A. H. (2022). Investigating the tax fraud determining factors in Iran’s Economy by examining Bayesian Econometrics. Journal of Tax Research, 53, 97-122. (In Persian).
Hendrickson, J.R. & Luther, W.J. (2022). Cash, crime, and cryptocurrencies. Q. Rev. Econ, Finance, 85, 200–207. DOI: https://doi.org/10.1016/j.qref.2021. 01.004.
Hibbs Jr., D.A., & Piculescu, V. (2010). Tax toleration and tax compliance: How government affects the propensity of firms to enter the unofficial economy. American Journal of Political Economy, 54(1), 18-33. DOI: https://doi.org/10.1111/j.1540-5907.2009.00415.x
Hosseini Doost, S. A., Sepherdoost, H., Jafari ,A., & Nasrallahi, R.(2023). Non-Linear analysis of factors affecting Iran's economic growth: Evidence from Markov Switching Approach. Stable Economy Journal, 4(3), 27-62. DOI: 10.22111/SEDJ.2023.46353.1377. (In Persian).
Immordino, G., & Russo, F.F. (2018a). Cashless payments and tax evasion. Eur. J. Polit. Econ, 55, 36–43.
Izadi, A., Sameti, M., & Akbari, N. (2021). Estimation of tax evasion in Iran using the MIMIC Method (1976-2016). Journal of Tax Research, 48, 7-31. (In Persian).
Kahn, C.M. (2018). Payment systems and privacy. Fed. Res. Bank St. Louis Rev, 100 (4), 337–344.
Kane, E.J. (1981). Accelerating inflation, technological innovation, and the decreasing effectiveness of banking regulation. J. Finance, 36 (2), 355–367.
Karimi Petanlar, S., Gilak Hakimabadi, M. T., & Nochsmsni, F. S. (2015). Investigation of Government Effectiveness Impact on Reducing Tax Evasion: the Case Study of Selected Countries. Journal of Tax Research, 23(27), 63-90. (In Persian).
Karimi Petanlar, S., & Karimi, J. (2023). Identifying the most important factors affecting tax evasion in Iran's economy and investigating how they affect over time. Economic Modelling, 7(4), 93-117. (In Persian).
Krolzig, H-M. (1998). Econometric modeling of Markov-Switching Vector Autoregressions using MSVAR for Ox, Oxford.
Lee, J., & Strazicich, M. C. (2003). Minimum Lagrange multiple Unit Root Test with two structural breaks. Review Of Economics and Statistics, 84(5), 1082-1089. DOI:https://doi.org/ 10.1162/003465303772815961
Motallebi, M., Alizadeh, M., & Faraji Dizaji, S. (2020). Estimating shadow economy and tax evasion by considering the variables of government financial discipline and behavioral factors in Iran’s economy. Iranian Economic Review, 24(2), 515-544. DOI: 10.22059/ier.2020. 76016
Mu, R., Fentaw, N. M. & Zhang, L. (2023). Tax evasion, psychological egoism, and revenue collection performance: Evidence from Amhara region, Ethiopia. Frontiers in Psychology, DOI: 10.3389/fpsyg.2023.1045537.
Nikopour, H., Shah Habibullah, M., & Schneider, F. (2008). The Shadow Economy Kuznets’s Curve Panel Data Analysis. MPRA Paper, No. 12956.
Rainone, E. (2023). Tax evasion policies and the demand for cash. Jornal of Macroeconomics, 76, 103520. DOI: https://doi.org/10.1016/j.jmacro.2023. 103520
Saafi, S., Farhat, A., & Bel Haj Mohamed, M. (2015). Testing the relationships between shadow economy and unemployment: Empirical evidence from linear and nonlinear tests. Studies in Nonlinear Dynamics and Econometrics, De GRUYTER, 19(5), 585-608.DOI: https://doi.org/10.1515 /snde-2014-0021
Sameti, M., Izadi, A., & Fathi, S. (2021). Determining Effective Factors on Tax Evasion using the Method of Meta-Analysis Abstract. Stable Economy and Sustainable Development, 2 (2), 1-22. (In Persian). DOI: 10.22111/SEDJ. 2021.38231.1113
Sandmo, A. (2005). The theory of tax evasion: a retrospective view. Natl. Tax J. LVIII, 643–663.
Schneider, F., Buehn, A., & Montenegro, C.E. (2010). New estimates for the shadow economies all over the world. International Economic Journal, 24(4), 443-461. DOI: 10.1080/10168737. 2010.525974
Vasilopoulou, Y., & Thomakos, D. (2017). Tax evasion, tax administration, and the impact of growth: Tax enforcement as regulatory failure in a high tax rates, high tax evasion, and low-growth economic environment, Springer.

Files

Share

How to cite

Statistics