Recession and Tax Compliance The Case of Slovenia

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1 Inzinerine Ekonomika-Engineering Economics, 2014, 25(2), Recession and Tax Compliance The Case of Slovenia Tomaz Lesnik, Davorin Kracun, Timotej Jagric University of Maribor Razlagova 14, 2000 Maribor, Slovenia In this paper, we focus on the area of public finances, where the consequences of recession and government's responses to its effects significantly influenced some macroeconomic categories. overnment deficits and government debts increased and collected revenues dropped. In addition, the economic crisis influenced a basic element of modern tax systems, i.e. tax compliance, where the consequence has been an increase in the tax debt. Data for Slovenia show that the amount of outstanding tax obligations during the recession increases, while the amount of collected revenues simultaneously drops. Thus, in 2011, the amount of tax debt grew to over 0.9 billion EUR, which is equivalent to the deficit in the general public finance budget. In our analysis, we examine the influence the recession has had on tax compliance in Slovenia. As a measure for noncompliance, we used data on tax debt (unpaid taxes). On the basis of the tax debt fluctuations and the results of regression model, we have discovered that economic fluctuations have significantly influenced the level of tax compliance. As significant explanatory variables, we point to the fluctuations of the average wages in the private sector and also the unemployment rate, which has been steadily increasing during the course of the recession. We also believe that the possibility for less restrictive measures of fiscal policy during the times of economic recession (tax enforcement activities, temporary reprieves, and instalment plans) is worth discussing. recession, tax compliance, tax debt, tax debt collection, financial crisis. Introduction

2 Tomaz Lesnik, Davorin Kracun, Timotej Jagric. Recession and Tax Compliance The Case of Slovenia Literature review

3 Inzinerine Ekonomika-Engineering Economics, et al et al et al et al Tax Unpaid t = β o + β 1 Consumables t + β 2 Average Employment t + β 3 CR4 t + β 4 Profit t + u t

4 Tomaz Lesnik, Davorin Kracun, Timotej Jagric. Recession and Tax Compliance The Case of Slovenia Tax debt in Slovenia Figure 1 Figure 2. Data and methodology Statistical properties of selected data Note:*MacKinnon (1996) one-sided p-values

5 Inzinerine Ekonomika-Engineering Economics, d(tax debt t ) = β0 + β1d(unemployment t ) + β2d(average wages in the private sector t ) + β3d (Company Incomes t ) + β4d(slovenian Stock Exchange index t ) + β5d(indexes of the industrial production t ) + D1 t + D2 t + u t Results

6 Tomaz Lesnik, Davorin Kracun, Timotej Jagric. Recession and Tax Compliance The Case of Slovenia The results of the model Note: Dependent Variable: TD, Method: Least Squares, Sample (adjusted): 2007M M06, Included observations: 46 after adjustments Correlation matrix for explanatory variables

7 Inzinerine Ekonomika-Engineering Economics, II III IV I II III IV I II III IV I II CUSUM 5% Significance II III IV I II III IV I II III IV I II CUSUM of Squares 5% Significance Figure 3. Figure 4 Discussion Figure 5.

8 Tomaz Lesnik, Davorin Kracun, Timotej Jagric. Recession and Tax Compliance The Case of Slovenia et al Conclusion

9 Inzinerine Ekonomika-Engineering Economics, References Legal and Criminological Psychology Journal of Business Ethics Transylvanian Review of Administrative Sciences Romanian Journal of Economic Forecasting International monetary Fund International Tax and Public Finance The Economic Journal, German Economic Review,. Law & Policy Europe Asia Studies Inzinerine Ekonomika-Engineering Economics Inzinerine Ekonomika-Engineering Economics Journal of Economic Psychology Inzinerine Ekonomika-Engineering Economic, Economica, Inzinerine Ekonomika-Engineering Economics Davcno financna praksa National Tax Journal Journal of economic Behaviour & Organization National Tax Journal

10 Tomaz Lesnik, Davorin Kracun, Timotej Jagric. Recession and Tax Compliance The Case of Slovenia Europian Journal of Law and Economics Journal of Law and Society Stanford law & Policy review African Journal of Business Management Department of the Treasury, Internal Revenue Service. Baltic Journal of Economics Columbia Law Review Theoretical Economics MER Evrocenter Institute of Economics, Johannes Kepler University of Linz. Organisation for economic co-operation and development Social Research Journal of Economic Psychology The Economic and Social Review Recesija ir mokestinių prievolių vykdymas: Slovėnijos pavyzdys

11 Inzinerine Ekonomika-Engineering Economics, pagrindinio agentoir kt ir kt laimės determinantas ir kt ir kt tyrimo tikslai Tyrimo objektas recesija, mokestinių prievolių vykdymas, mokesčių skola, mokesčių skolų išieškojimas, finansinė krizė.