The Encyclopedia of Taxation and Tax Policy Preface Contents Meet the Editors Review Comments UIP Bookstore Tax Evasion by James Alm University of Colorado at Boulder Illegal and intentional actions taken by individuals or firms to reduce their tax payments. Tax evasion is one of the most common economic crimes. Legal methods known as tax avoidance take full advantage of the tax code. Tax evaders fail to pay legally due obligations. Individuals and firms evade taxes by underreporting incomes, overstating deductions and exemptions, or failing to file returns.
Tax evasion is important for many reasons.
It reduces tax collections, thereby affecting taxes that compliant taxpayers face and public services that citizens receive. Evasion creates resource use misallocations when individuals alter their behavior to cheat on their taxes. It alters the distribution of income in unpredictable ways. Evasion may contribute to feelings of unfair treatment and disrespect for the law. It affects the accuracy of macroeconomic statistics.