TJN: The Cost Of Tax Abuse

November 29th, 2011

Tax evasion is the illegal non-payment of tax to the government of a jurisdiction to which it is owed by a person, a company, trust, or other organisation who should be a taxpayer in that place.

It is largely people’s desire to to evade taxes that creates most of the so called ‘shadow economy’ that is hidden from officialdom’s view to make sure that tax is not paid.

In this report, we first estimate the absolute size of a country’s shadow economy based on its own published estimate of its GDP and recently-reported data on the size of shadow economies published by the world bank. This, and other data we use, is what we think the best currently available for the purpose of this report and, as such, should provide the best estimates possible.

By the definition used here, economic activity in the shadow economy of a country will be tax-evading. So we next calculate an estimate of the amount of tax lost as a result of the existence of that shadow economy. We do this by looking at how much taxes are on average in the state as a share of GDP, and then apply the same tax share to the shadow economy, to reveal our estimates of lost taxes by state. We then compare these lost taxes to health care spending in each country surveyed. This data has also been compared by continent.

Download the report here

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