Factors of Tax Evasion: The Case of the Czech Republic

The main goal of this paper is to estimate factors of tax evasion in the Czech Republic. Among other things, tax evasion reduces state revenues which fact leads to a decrease in the quantity and quality of publicly provided goods and services. Therefore it is necessary to ensure that taxpayers comply with their tax obligations. Firstly, we use the monetary method (cash/deposit ratio) to estimate the size of tax evasion in absolute and relative terms. According to our estimates, the extent of tax evasion in the Czech Republic was almost 3.6 percent of GDP in 2021. Secondly, we use multivariate time series cointegration analysis models to analyse the economic, tax, and institutional determinants of tax evasion in the Czech Republic. The factors negatively associated with tax evasion include tax overpayments, VAT revenue, and implementation of tax measures introduced in 2020. The positive impact has GDP, PIT revenue, CIT revenue, inflation, monetary freedom, Gross National Savings, trade freedom, PIT rate, unemployment, and average wage.

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