In this paper, the size and development of the shadow economy and of tax evasion of Poland and of Poland’s neighbours (except for the Ukraine) are shown over the period 2003 to 2010. The size and opment of the shadow economies is also shown for 36 highly devel-oped OECD countries. The average size of the shadow economy in 27 EU-Countries is 22.3% in 2003 and decreased to 18.4% (of official GDP) in 2013. We also consider the most important driving forces of the shadow economy in 38 OECD countries. The biggest ones are with 14.6% unemployment and self-employment, followed by tax morale with 14.5% and GDP growth with 14.3%. The size of tax eva-sion (accounting for indirect taxation and self-employment activities) was on average 4.2% (of official GDP) in Poland, 1.9% in Germany and 2.9% in the Czech Republic. What type of policy conclusions can we draw from these results?
1. Our paper clearly shows that a reduction of the shadow econ-omy can be achieved using various channels that governments can influence. The main challenge still is to bring shadow econ-omy activities into the official econecon-omy in a way that goods and services previously produced in the shadow economy are still produced and provided in the official economy. Only then the government gets additional taxes and social security contribu-tions and transfers value added from the shadow into the official economy.
2. The main driving forces of the shadow economy are indirect taxes, followed by self-employment and unemployment. Hence,
to reduce the shadow economy these are the most efficient pol-icy options.
3. It is essential to liquidate tax havens which are currently a tool for commercial and wholesale tax evasion through complicated structure of tax avoidance – which appears to be difficult in the medium term or even long term– due to increasing number of beneficiaries who have the possibilities of hampering political and organizational precautious measures through their accumu-lation of the capital.
4. Fighting tax evasion from VAT-fraud is maybe the most impor-tant policy goal. If also in the European Union all member states try to efficiently fight tax fraud by making the VAT-system more efficient with clear-cut rules and little exemptions, then this would lead to great success in reducing this type of tax fraud. Due to the lack of the common fiscal policy it is unlikely to, among others, harmonize tax rates, and therefore the EU states having the highest tax rates should expect heightened risk of the tax reclaim fraud through numerous dummy transactions and buffer companies within intra-Community trade. Thus, it may lead to elimination of some honest business entities from the market which will be unable to compete with fraudulent en-tities in terms of the price. Budget losses triggered by the grow-ing tax gap because of tax refunds undue will increase the defi-cit (and thus the public debt), and they may translate into spend-ing cuts in the followspend-ing tax year, which may impact the rate of economic growth.
References
Aaronson, G. (2011) (reported), GAAR Study. A study to consider whether a general anti-avoidance rule should be introduced into the UK Tax system, Crown, London, 11 November.
Action Plan to strengthen the fight against tax fraud and tax evasion (2012), European Commission, Brussels COM(2012)722 final.
Breusch, T. (2005), Estimating the underground economy using MIMIC models, School of Economics, Faculty of Economics and Com-merce, Australian National University, (Revised, November).
Breusch, T. (2005), The Canadian underground economy: An examina-tion of Giles and Tedds, Canadian Tax Journal, 53(2), pp. 367391.
Buehn, A. and Schneider, F. (2012), Size and Development of Tax Evasion in 38 OECD Countries: What do we (not) know?, CESifo Paper Discussion Series, November 2012, CESifo, University Mu-nich, Munich.
Clamping down on tax evasion and avoidance (2012), Commission presents the way forward, European Commission, Brussels, 6 De-cember.
Commission Recommendation on aggressive tax planning (2012), European Commission, Brussels COM(2012)8806 final.
Estimating Illicit Financial Flows Resulting from Drug Trafficking and other Transnational Organized Crimes (2011), United Nations Office on Drugs and Crime (UNODC), Vienna, October, pp. 4, 38.
Feld, L.P. and Schneider, F. (2010), Survey on the Shadow Economy and Undeclared Earnings in OECD Countries, German Economic Review, No. 11/2.
Freedman, J. (2012), GAAR as a process and the process of discussing the GAAR, British Tax Review, Issue 1.
GAAR rising (2013), Mapping tax enforcement’s evaluation, Ernst &
Young, February.
Gemmel, N. and Hasseldine, J. (2012), The Tax Gap: A Methodologi-cal Review, Working Papers in Public Finance, Victoria Univer-sity of Wellington, Wellington 09.
General Anti-Abuse Rule (2013), HM Revenue & Customs, London.
Gravelle, J.G. (2013), Tax Havens: International Tax Avoidance and Evasion, Congressional Research Service, Washington, January 23.
No save haven (2013), Our offshore evasion strategy 2013 and be-yond, HM Revenue & Customs, London.
Oxfam reaction to EU leaders’ timid ambition to clamp down on tax dodging, 22 May 2013. http://www.oxfam.org/en/eu/pressroom/- pressrelease/2013-05-22/tax-havens-private-billions-could-end-extreme-poverty-twice-over.
PwC (2013), Losses of the Treasury in VAT, Study of PriceWater-houseCoopers, Warsaw, May 2013.
Raczkowski, K. (2013), Gospodarka nieoficjalna w systemie zarz-dzania pastwem [in:] Gobiowska, E. and Raczkowski, K., Za-rzdzanie – nowe perspektywy, Przedsibiorczo i zaZa-rzdzanie, Spoeczna Akademia Nauk, Lód, Vol. XIV, Book 8.
Reckon (2009), Study to Quantify and Analyse the VAT Gap in the EU-25 Member States, DG Taxation and Customs Union, Brus-sels, September 21.
Recommendation regarding measures intended to encourage third countries to apply minimum standards of good governance in tax matters (2012), European Commission, Brussels, COM(2012)8805 final.
Regulation by the European Parliament and Council (EU) No. 549/
2013 of May 21, 2013, on the European system of national and re-gional accounts in EU, Official Journal U. L174/1.
Schneider, F. (2005), Shadow Economies Around the World: What do we really know?, European Journal of Political Economy, Vol.
21/2, September.
Schneider, F. (2011), (editor), Handbook on the Shadow Economy, Cheltenham (UK), Edward Elgar Publishing Company.
Schneider, F., Buehn, A. (2013, revised version), Shadow Economies in Highly Developed OECD Countries: What are the Driving Forces?, first published as IZA Discussion Paper (2012), No. 6891, Institute for the Study of Labour, University of Bonn, Bonn.
Schneider, F., Buehn, A. and Montenegro, C.E. (2010), New Esti-mates for the Shadow Economies All Over the World, Interna-tional Economic Journal, December, No. 24/4.
Taxation trends in the European Union (2013), Data for the UE Member States, Iceland and Norway, Eurostat statistical book, European Commission, Brussels.
UK Finance Act 2013 (2013), Authority of the House of Lords and House of Commons, London.