Download The consequences of tax evasion


MACROECONOMIC EFFECTS
PUBLIC INDEBTEDNESS
 FIGHTING TAX EVASION
 PUBLIC CUTS
 EFFECTS ON EQUITY AND INCOME DISTRIBUTION
 TAX BURDEN
 EFFECTS ON RESOURCE ALLOCATION AND
EFFICIENCY

The main effects of tax evasion on the economy are as follows.
MACROECONOMIC EFFECTS:
Tax evasion causes serious damage to the
state, through the reduction of tax returns and
public revenue
This translates into a WORSENING of
the public debt.
The lack of cash will force the policy maker to
Reduce services
and public
spending
So as to make up for
the missing revenue
from tax evaders
Increase the tax
burden on taxpaying citizens
The policy maker obtains the missing resources
by issuing
More public bonds
This short-term solution
leads to greater public
indebtedness in the
long run
Interests will have to be paid
once they reach maturity.
The policy maker increases the tax monitoring
to identify tax-evaders.
This is a
Complex step
because
Tax assessment entails
considerable expenditure for
the state and does not allow it
to assess all istances of abuse.
The policy maker cuts public spending
by providing fewer public goods and services.
Public cuts can be
positive
because they
enable the state to
rationalise its
expenditure and
reduce waste
negative
because in other cases they
translate into a further economic
burden on less affluent citizens
Tax evasion interferes with the income distribution, as
citizens and companies differ in the degree to which
they can evade taxes.
Employees have less chance of
evading
(they are taxed directly in their
paychecks)
The state imposes higher taxes for the
people who are already paying tax
When the
state is
forced to
increase the
tax burden
In order to found public spending the
policy maker is forced to
Raise the tax rates for
honest citizens
Tax evasion penalises tax-payers
Companies which have paid all their
taxes are damaged both
By the
increase in
tax rates
By the
competition from
tax-evading
companies
Tax-evaders benefit from:
Lower costs compared to tax-payers
They can operate with more
competitive prices
In long term, this will distort resource allocation
Resources will tend to flow into sectors with
higher tax-evasion rates, hampering economic
growth and economic development.
POWERED BY: LUCIA COBUCCI
VC AFM