sasa randjelovic jelena zarkovic-rakic university of belgrade – faculty of economics
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Tax Design-Tax Evasion Relationship in Serbia: New Empirical Approach to Standard Theoretical Model. Sasa Randjelovic Jelena Zarkovic-Rakic University of Belgrade – Faculty of Economics. 2013 EUROMOD research workshop Technical University of Lisbon, Lisbon - Portugal 2-3 October 2013. - PowerPoint PPT PresentationTRANSCRIPT
Tax Design-Tax Evasion Relationship in Serbia: New
Empirical Approach to Standard Theoretical Model
Sasa Randjelovic
Jelena Zarkovic-RakicUniversity of Belgrade – Faculty of Economics
2013 EUROMOD research workshop Technical University of Lisbon, Lisbon - Portugal
2-3 October 2013
Outline
Tax evasion: theoretical framework
Tax evasion: literature review and aim of the paper
Tax reform scenarios
Data and methodology
Research design
Results
Concluding remarks
Income tax evasion: theoretical framework
Allingham-Sandmo model of determinants of tax evasion: True income (+, -, 0)
Penalty rate (-)
Probability of detection (-)
Marginal tax rate (-):
Yitzhaki’s critics: if fine is a function of evaded tax a rise in the tax rate triggers decline in tax evasion
Income tax evasion: literature review and aim of the
paper Empirical literature: Positive impact of increase in probability of detection and fines (Pommernehe (1996), Keen
(2008)) Tax evasion rises as true income is rising (Alm (1992)) Negative relationship between MTR and non-reported income (Alm (1992), Pommernehe
(1996))…confirms A-S model
Tax evasion decision – a question of rational choice under uncertainty …then taxpayer would make tax evasion decision based on the change in disposable
income, instead based on change in after-tax income
Aim of the paper: Investigate the tax evasion response to change in EMTR, due to tax reform
Based on Serbian data
Tax reform scenarios
Flat Tax
- Scenario 1
Comprehensive IT
- Scenario 3
Dual IT
- Scenario 3
Taxable income
Sum of income from all sources Labor income Capital income
Tax base Gross income decreased by deductions Capital income
Personal allowance
RSD 9,000 (20% of AW) /
Dep. children allowance
RSD 4,000 (9% of AW) /
Health care expenditures
/ Full amount /
Educational expenditures
/ Up to RSD 4,000 /
Tax Rate(s) 15% 10%, 20% and 25%
10%, 15% and 20%
10%
Data and methodology
SRMOD – tax & benefit microsimulation model for Serbia
Econometric analysis of cross-section data: OLS method
Dataset used in SRMOD: Living Standard Measurement Survey 2007
Survey performed by the Statistical Office of Serbia Sample: 5,557 households (17,375 individuals)
Research design
Results: Income Tax Evasion in Serbia – scale and
structure Tax evasion rate: (non-reported income/reported income)x100
Tax evasion rate per deciles
Type of income% of labor
incomeNon-
declaration rateTax evasion
rate% of taxpayers
Employment 75% 9,8% 8,9% 16,6%Self-employment 25% 78,3% 43,9% 64,4%Total 100% 26,9% 21,2% 25,6%
Results: modeling tax evasion
Elasticity of tax evasion rate (TAR) to emplyoment income (EMPY), self-employment income (SEMPY) and EMTR
The results confirm Yitzhaki teorem
iEMTRSEMPYEMPYTAR loglogloglog 3210
Dependent variable Independent variable
logTAR logEMPY logSEMPY logEMTR
Coefficient -0,63*** 0,48*** -0,30***
t-ratio -9,30 4,67 -1,85
p-values 0,000 0,000 0,068
Statisical properties R2=0,82; F(3, 79)=251,15 (p=0,000); JB=1,80
Results: modeling tax evasion
Ceteris paribus, each reform scenario would yield slight increase in tax evasion: comprehensive>flat>dual
The effects could be reduced by increase in probability of detection
Flat PIT Dual PIT
Comprehensive PIT
ΔEMTR, in percent -18.8% -15.6% -20.1%
Tax evasion-EMTR elasticity -0.30 -0.30 -0.30
Δ tax evasion, in percent 5.6% 4.7% 6.0%
Tax evasion rate after the reform 22.4% 22.2% 22.5%
Concluding remarks
