1016 Pamplin Hall
Blacksburg, VA 24061
Institutional Affiliation: Virginia Tech
NBER Working Papers and Publications
|September 2015||Tax Evasion across Industries: Soft Credit Evidence from Greece|
with Adair Morse, Margarita Tsoutsoura: w21552
We document that in semiformal economies, banks lend to tax-evading individuals based on the bank's assessment of the individual's true income. This observation leads to a novel approach to estimate tax evasion. We use microdata on household credit from a Greek bank, and replicate the bank underwriting model to infer the banks estimate of individuals' true income. We estimate that 43%-45% of self-employed income goes unreported and thus untaxed. For 2009, this implies 28.2 billion euros of unreported income, implying foregone tax revenues of over 11 billion euros or 30% of the deficit. Our method innovation allows for estimating the industry distribution of tax evasion in settings where uncovering the incidence of hidden cash transactions is difficult using other methods. Primary tax-evad...