Austerity and tax compliance

Francesco Pappada, Yanos Zylberberg

Research output: Contribution to journalArticle (Academic Journal)peer-review

2 Citations (Scopus)
145 Downloads (Pure)

Abstract

Relying on a novel measure of VAT compliance in a panel of 35 countries, we document a robust negative response of tax compliance to changes in tax rates. In order to rationalize this finding, we develop a theoretical framework where heterogeneous firms adjust the share of declared activity. We calibrate the model using rm-level data in Greece, and find large leakages following the recent austerity plans. We then show how differences in financial development and the size of economic activity at the margin of informality are able to explain the heterogeneous response of tax compliance to tax rates across countries.
Original languageEnglish
Pages (from-to)506-524
Number of pages19
JournalEuropean Economic Review
Volume100
Early online date22 Sep 2017
DOIs
Publication statusPublished - Nov 2017

Structured keywords

  • ECON Macroeconomics

Keywords

  • Austerity
  • Tax compliance
  • Credit frictions

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