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Table 3.3.7. Ranking of 120 Countries According to the Size of the Shadow Economy as percentage of GDP
(Schneider, 2010)
1 Switzerland 9.0
74 Romania 39.2
5 Japan 12.0
80 Jamaica 39.5
10 China 13.9
85 Brazil 40.8
30 Sweden 20.4
90 Paraguay 43.3
40 India 25.3
95 Ghana 45.0
46 Italy 27.4
100 Kazakhstan 47.2
50 Poland 28.9
118 Peru 63.7
71 Egypt, Arab Rep. 36.9
120 Georgia 71.2
Source: Schneider et al. (2010)
Why do people evade taxes?
What do people think of tax evasion?
• 57 % could think of hiring black labor
• 52 % could think of working in the black sector
• 11 % could think of reporting wrong to the tax
authority
• 5 % say it’s ok that others evade taxes
• 15 % would evade taxes if they could
Source: Swedish Tax Authority (2005)
Model (simplified) :
EU   (1  p)U Y  tDY   pU Y  tDY  f (Y  DY )  d (Y  DY )  EV [ ],
DY is declared income
Disutility function: d’(Y-DY) ≥ 0 and d’’(Y-DY) ≥ 0.
Expected value of the public good:
N
 N

E[ ]  E qt  DYn   E[q]t  E[ DYn ]
n 1
 n 1

Condition for no evasion:
U (Y )t  pf   d   V ( ) Eq  t  0
Source: Hammar, Jagers, and Nordblom (2009)