The Tax Gap: A Methodological Review

Advances in Taxation, Vol 20, December 2012, pp. 203-231

Victoria University of Wellington School of Business Working Paper No. 09/2012

35 Pages Posted: 14 Jan 2013

See all articles by Norman Gemmell

Norman Gemmell

Victoria University of Wellington - Te Herenga Waka - Victoria Business School

John Hasseldine

Nottingham University Business School

Date Written: December 1, 2012

Abstract

The global economic crisis has highlighted the continuing problem of tax evasion. For tax agencies to respond, an important antecedent necessitates knowing the extent of the problem. This study is the first to comprehensively review recent research on the tax gap. Our primary contributions are two-fold. First we argue that the tax gap, as conventionally defined, is conceptually flawed because it fails to capture behavioral responses by taxpayers adequately. Our second contribution is to review methods for measuring the tax gap and compare empirical estimates. We suggest that many of the most trenchant criticisms of conventional tax gap measurement (and the ‘hidden economy’ measures that underlie them) leave only microdatabased measures of tax non-compliance as likely to deliver more reliable tax gap estimates. Even here, however, further work is required, on both conceptual and empirical aspects, before tax gaps suitable for policy analysis (e.g. implications for enforcement policy) are likely to be delivered.

Suggested Citation

Gemmell, Norman and Hasseldine, John, The Tax Gap: A Methodological Review (December 1, 2012). Advances in Taxation, Vol 20, December 2012, pp. 203-231, Victoria University of Wellington School of Business Working Paper No. 09/2012, Available at SSRN: https://ssrn.com/abstract=2199200 or http://dx.doi.org/10.2139/ssrn.2199200

Norman Gemmell (Contact Author)

Victoria University of Wellington - Te Herenga Waka - Victoria Business School ( email )

PO Box 600
Wellington 6140
New Zealand

John Hasseldine

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom
+44 (0) 115 9515279 (Phone)

HOME PAGE: http://www.nottingham.ac.uk/business/LIZJH1.htm

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