Estimating Tax Noncompliance among the Self-Employed – Evidence from Pleasure Boat Registers

Edvard Johansson, Per Engström, Johannes Hagen

Research output: Working paperScientific

Abstract

In this paper, we improve upon the Pissarides-Weber (PW) method for
estimating tax evasion among the self-employed by utilizing unique
register-based consumption measures from the Swedish and Finnish
mandatory registers for pleasure boats. Our main contributions are
twofold: i) The PW method crucially relies on the assumption that the
intrinsic consumption preferences are the same for self-employed and
wage earner households. Thanks to our rich data, we are able to test
this assumption directly by contrasting the Engel curves between wage
earner households and households that will become self-employed in
the future. We find that the group that will become self-employed is
only marginally more prone to own a boat before they actually become
self-employed. This lends support to the assumption of similar intrinsic
preferences between the two groups. ii) The large sample size that
comes with register-based consumption measures allows us to challenge
the standard functional form assumptions in previous PW applications.
The estimated sizes of income underreporting in absolute
monetary amounts are almost constant over reported income levels,
whereas previous studies have assumed that the underreporting is proportional
to income.
Original languageEnglish
Place of PublicationTurku
PublisherAboa centre for economics
Number of pages31
Publication statusPublished - 23 Mar 2021
MoE publication typeD4 Published development or research report or study

Publication series

NameDiscussion paper
PublisherAboa Centre for Economics
No.144
ISSN (Print)1796-3133

Keywords

  • tax evasion, income underreporting, pleasure boats, Engel curves, permanent income, self-employment

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