Gothenburg University.
Correspondence to Douglas A. Hibbs, Jr. , is emeritus Professor of Economics and Senior Research Associate at the Center for Public Sector Research (CEFOS), Gothenburg University, 40530 Gothenburg, Sweden (douglas(собачка)douglas-hibbs.com). Violeta Piculescu is a PhD in Economics from Gothenburg University, 40530 Gothenburg, Sweden (violeta.piculescu(собачка)gmail.com).
We are grateful to the Center for Public Sector Research (CEFOS) at Gothenburg University for supporting Douglas Hibbs's research and to the Robert Schuman Center at the European University Institute for supporting Violeta Piculescu's research. Various drafts of the article benefited from comments by anonymous reviewers and by participants at panels and seminars at the Center for Public Sector Research, Gothenburg University, Sabanci University, Istanbul, the U.S. and European Public Choice Societies, Aarhus University, Nuffield College Oxford, University of Naples Parthenope, University of Saleo, and the University of Georgia, Athens.
How do govement-supplied institutional benefits and the taxation and regulation of producers affect the propensity of private firms to enter the unofficial economy and evade taxation? We propose a model in which the incentive of firms to operate underground depends on tax rates relative to firm-specific thresholds of tax toleration that are decisively affected by quality of goveance—in particular by the presence of high-grade institutions delivering services enhancing official production that anchor profit-maximizing firms to the official economy. Some key predictions of the model conceing the determinants of firms' tax toleration and tax compliance receive broad support from empirical analyses of enterprise-level data from the World Bank's World Business Environment Surveys.
Correspondence to Douglas A. Hibbs, Jr. , is emeritus Professor of Economics and Senior Research Associate at the Center for Public Sector Research (CEFOS), Gothenburg University, 40530 Gothenburg, Sweden (douglas(собачка)douglas-hibbs.com). Violeta Piculescu is a PhD in Economics from Gothenburg University, 40530 Gothenburg, Sweden (violeta.piculescu(собачка)gmail.com).
We are grateful to the Center for Public Sector Research (CEFOS) at Gothenburg University for supporting Douglas Hibbs's research and to the Robert Schuman Center at the European University Institute for supporting Violeta Piculescu's research. Various drafts of the article benefited from comments by anonymous reviewers and by participants at panels and seminars at the Center for Public Sector Research, Gothenburg University, Sabanci University, Istanbul, the U.S. and European Public Choice Societies, Aarhus University, Nuffield College Oxford, University of Naples Parthenope, University of Saleo, and the University of Georgia, Athens.
How do govement-supplied institutional benefits and the taxation and regulation of producers affect the propensity of private firms to enter the unofficial economy and evade taxation? We propose a model in which the incentive of firms to operate underground depends on tax rates relative to firm-specific thresholds of tax toleration that are decisively affected by quality of goveance—in particular by the presence of high-grade institutions delivering services enhancing official production that anchor profit-maximizing firms to the official economy. Some key predictions of the model conceing the determinants of firms' tax toleration and tax compliance receive broad support from empirical analyses of enterprise-level data from the World Bank's World Business Environment Surveys.