Journal of Economics and Management Volume 17, No. 2 September, 2021

Theoretical Analysis of the Impact of Tax Evasion

Chun-Hung Chen

Department of Accounting, Chaoyang University of Technology, Taiwan

Li-Hao Zheng

Department of Accounting, Chaoyang University of Technology, Taiwan

En-Fu Tsai

Department of Accounting, Chaoyang University of Technology, Taiwan

Abstract

This study sets up a simple theoretical model to explore the impact of taxpayers’ tax evasion. This research starts from government policy, takes income taxpayers as the research object, and assumes that there are behaviors of paying taxes and evading taxes without abiding by the law to analyze the impact of tax evasion. This study will use a simple IS-LM model to analyze the impact of tax evasion on GDP and interest rates, using different government expenditure structures as the facet to study whether tax evasion will affect the macroeconomy. This study finds that tax evasion is harmful to economic development when the government is self-sufficient. However, when the government is not self-sufficient, this study finds that when the government’s marginal expenditure tends to be larger or smaller, tax evasion is beneficial to economic development. And in the relationship between government expenditure and taxation, this paper studies the multiplier effect of various important variables, and the results of these studies are quite different.

Keywords：Tax Evasion, Government Expenditure, Government Tax Income, Government’s Marginal Expenditure Propensity

JEL Classifications：H26, H50.

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