Research Papers

Applied Econometrics Independent Research Project

Tax evasion is one of the leading challenges faced by most economies around the world. It refers to techniques used by businesses to avoid paying taxes to the government, thereby increasing the profit margins. Tax evasion has a direct impact on the economy; for instance, it reduces the level of development achieved by a government because of insufficient collection of revenue.

Hypotheses derived from this particular topic are:

  • HO1 Tax evasion has no significant effect on the revenue collected by a state.
  • HO2 Tax avoidance has no relationship with revenue targets of a country

The topic is essential because it helps learners to understand the role of taxation in a country’s economy. Besides, learners can understand the reasons why businesses avoid paying taxes and procedures for ensuring tax compliance (Slemrod, Yitzhaki, & Crocker, 2005). Also, it is impressive considering that students get to understand the cycle between tax avoidance and the effects that arise.

The existing literature indicates that tax compliance is a significant problem across the states since authorities continually persuade the taxpayers to comply with the tax requirements. The high costs that businesses incur in their operations could be among the reasons for tax evasion globally. Considering marginal expenses in an organization as opposed to fixed and variable expenses could also expose a business to the risk failure (Lymer & Hasseldine, 2002). The management needs to realize that apart from the marginal cost, the market is affected by other related expenses.

In this case, it is not wise to make a decision based on marginal cost without considering other factors. The concept of fixed-cost being a hurdle to small business is efficient in the market, and most companies have terminated their operations because they cannot meet their expenses as the response implies. Therefore, it is not realistic to brush away the fixed and variable costs incurred by the company (Lymer & Hasseldine, 2002). However, the company needs to consider reducing expenses. It is likely to increase the revenue margin hence higher profitability.

Determining the drivers of cost in an organization is an excellent achievement that managers can attain. This is a wise decision because the value in a company should be evaluated to determine whether the output realized is worth the cost (Waris, 2007). This should be accompanied by a quantitative analysis whereby managers are expected to learn whether the drivers of price bring additional value to the organization. Agree with this because most businesses fail is experienced because of making assumptions on expenses in the industry.

Data Description
Relevant for this topic is collected from the public, especially in regions that are characterized by high tax evasion. Besides, the particular data can be obtained through questionnaires and interviews on the respondents of the study.

Tax = 0.5 +0.2Y+Ut

The above model implies that the variables are related and depend on each other. For example, tax evasion depends on the tax sheltering policies that are put in place by the government. A higher coefficient implies a pronounced margin of evasion.

The above analysis is a clear indication that there exists a positive relationship between the variables under study. Tax is affected by the policies that are formulated and implemented by a national government. The research established that the strategic implementation of policies and procedures to manage and control tax collection improves tax revenue.

Lymer, A., & Hasseldine, J. (Eds.). (2002). The international taxation system. Springer Science & Business Media.
Slemrod, J., and Yitzhaki, J., and Crocker, H. (2005). Tax avoidance, evasion, and administration. National Bureau of Economic Research, Working Paper 7473.
Waris, A. (2007). Taxation without Principles: A historical analysis of the Kenyan Taxation System. Kenya Law Review, 1(272), 274-304.

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