Tax Compliance and Evasion Mechanisms
Summary
Tax compliance and evasion represent two sides of the same coin in public finance, shaping revenue flows and the distribution of tax burdens across societies. Compliance arises when taxpayers adhere to tax laws through accurate reporting, timely filing and payment, often encouraged by transparent procedures, taxpayer services and credible deterrence measures. In contrast, evasion occurs when individuals or firms deliberately underreport income, overstate deductions or conceal transactions to reduce liabilities. This dynamic interplay is influenced by economic incentives, administrative capacity, technological tools and social norms. Effective compliance mechanisms combine self‐assessment systems with risk‐based audits, data matching and digital reporting to lower compliance costs and heighten detection probabilities. Evasion thrives in contexts of informality, inadequate record‐keeping and diluted enforcement, yet recent advances in data analytics, electronic invoicing and machine‐learning-driven risk scoring are closing gaps. Understanding these mechanisms has global importance, from strengthening revenue mobilisation in emerging economies to preserving equity and trust in advanced tax jurisdictions. Research highlights the need for integrated strategies that balance assistance and enforcement, tailor interventions to sectoral heterogeneity and harness technology to sharpen both deterrence and service delivery.
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Tax Compliance and Evasion Mechanisms publication trend
The graph below shows the total number of articles in tax compliance and evasion mechanisms across all publications each year (not limited to Nature Index journals).
Technical terms
Tax gap: The difference between taxes owed under full compliance and taxes actually collected, reflecting evasion, avoidance and enforcement shortfalls.
Self-assessment: A system in which taxpayers calculate and report their own tax liabilities, subject to later verification by the tax authority.
Risk-based auditing: An approach that allocates audit resources by assessing the probability and potential yield of non-compliance cases using data analytics and profiling.
Electronic invoicing (e-invoicing): The digital generation, transmission and storage of invoice data, enabling real-time monitoring of transactions by tax authorities.
Informal economy: Economic activities and transactions that are not captured in official records, often escaping taxation and regulation.
References
- Machine learning and the optimization of prediction-based policies. Technological Forecasting and Social Change (2024).
- Informality, Consumption Taxes, and Redistribution. The Review of Economic Studies (2023).
- Digitalization to improve tax compliance: Evidence from VAT e-Invoicing in Peru. Journal of Public Economics (2022).
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