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
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Sasa Randjelovic Jelena Zarkovic-Rakic University of Belgrade – Faculty of Economics
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 Presentation
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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)