The Cause, Economic Effect And Countermeasures Of Tax Evasion And Avoidance

Lawfully taxpaying and tax evasion, avoidance are an inherent contravention. With the development of the contemporary taxation, tax evasion and avoidance are pervasive in all countries, and tax structures are undoubtedly skewed by this reality. More strictly, the phenomenon of explosive growth in tax evasion and avoidance are pervasive in transition economies. This has made the problem of tax evasion and avoidance more complex.This paper first presents theoretical models that integrate avoidance and evasion into the overall decision problem faced by individuals. Early models of this area focused on tax evasion, modeled as a gamble against the enforcement capability of the state. More recently, the literature has examined more general models of the technology of avoidance, with the additional risk bearing caused by tax evasion either being a special case of this technology or one aspect of the cost of the cost of changing behavior to reduce tax liability. This paper analysis not only on individual action on taxation, but also on government's action acting as policies maker and tax collector's action acting as policies operator.This paper then estimated the scale of tax evasion and avoidance in China from 1978 to 2002. The scale of tax evasion can be estimated by dividing to two parts: tax evasion in underground economy and in over-ground economy. This paper uses cash ratio to estimate the size of tax evasion in underground economy, and uses taxonomy to estimate the size of tax evasion in over-ground economy.In the end, this paper turns to normative analysis, and discusses how avoidance and evasion affect the analyses of three aspects on social economy: financial income or GDP, resource collocation and income distribution. Finally, this paper brings forward some suggestions on the countermeasure of tax evasion and avoidance.