TITLE:
An Economic Analysis of Tax Evasion
AUTHORS:
André Folloni, Victoria Baldani-Miranda
KEYWORDS:
Tax Evasion, Law and Economics, Tax Compliance, Economic Analysis
JOURNAL NAME:
Beijing Law Review,
Vol.15 No.2,
June
28,
2024
ABSTRACT: Tax evasion poses a challenge to economies: albeit taxation is necessary for maintaining a state that protects both collective and individual freedoms, an inefficient tax system (due to either excessive tax burdens or high compliance costs) can serve as an almost prohibitive barrier to economic activity, thereby affecting market equilibrium (such as supply and demand dynamics). In this regard, Law and Economics methods serve as a valuable tool for understanding tax evasion as an economic phenomenon. This analysis demonstrates, for instance, that taxpayers seek to maximize their well-being through their economic choices, including complying or not. Only by understanding the economic rationale behind tax evasion can we develop economic tools capable of preventing or mitigating it, such as positive incentives for compliance or stronger enforcement measures. This paper will explore the economic aspects of tax evasion, especially its main causes and some of the possible economic deterrents, emphasizing those already adopted in Brazil. The article will be organized as follows: Section 2 summarises the application of Law and Economics on taxation; Section 3 structures the dynamics of tax evasion as perceived through economic lenses; Section 4 addresses economic deterrents for tax evasion, exposing some of the tools adopted in different jurisdictions and specifically in Brazil. Section 5 concludes.