Tax Evasion in Developing Countries
Term Paper (Development Economics) DSE
According to Swiss Coalation of Development Organisations, harmful tax practices is leading to a loss of at least USD 50 billion a year for the Developing Countries. This amount is equivalent to the amount required by the World Bank and UNDP to achieve its Millenium Development Goals.It is also equivalent to the annual official aid given by the OECD countries to Developing Countries. And the tax burden is ultimately shifting from the rich to the poor.
Introduction
After the opening up of the financial markets tax evasion and money laundering have come up as serious problems for macroeconomists. Even though tax evasion was always a concern for the economists it has now increased to a much larger extent,due to the fact that many of the new financial markets assit the tax evaders by providing them with an easier way of hiding their black money.This amount which would have been used for economic and social development purposes is used for either criminal activities or for riskier low-quality investments like gambling.This money on entering the stock market also brings about a lot of instability.
In a study done by Alex Cobham,for low-income countries ,shadow economy forms 32.7% of the GDP and also has a potential tax revenue of 13.7%. And therefore, by bringing down tax evasion a lot of funds can generated and used for more welfare oriented investments.
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