Competition and Tax Evasion: A Cross Country Study

This paper investigates the determinants of tax evasion, utilizing rich cross-country data of firm-level survey from the World Bank, and shows that competition is a key factor determining evasion activities; however its effect displays a decreasing trend. It is also shown that business obstacles facing firms such as tax administration and unfair practices play significant roles in explaining tax evasion. Firm characteristics such as size, age, ownership are also found important determinants. The empirical analysis controls for industry and country-level effects, for instance quality of the legal environment.