Thursday, November 29, 2012
Much of tax law scholarship concerns how to improve tax compliance; in this literature, tax evasion is held out as normatively undesirable. A senior researcher at the London-based Royal Society of Arts recently published a paper in which he argues that tax evasion in the UK might (actually) be a good thing. In Untapped Enterprise, Benedict Dellot argues that the “informal economy” – those workers who do not declare their income for tax purposes – are an important part of the formal economy and that "formalization" itself is a process that occurs over the lifecycle of a business. In some parts of the developing world, for example, the informal economy accounts for up to 90% of GDP. The authors argue “If we rely too heavily on deterrence measures, we run the risk of derailing this[formalization] journey and preventing the entrepreneurial potential of thousands of hidden entrepreneurs from being realised.”
The study, of course, has some application limitations, but it’s an interesting read. Should tax policy accommodate certain forms of “productive” noncompliance? Does it already do so? I'd love to hear from some of our tax readers on this!