Quantifying tax evasion and avoidance as well as identifying the underlying factors is a difficult task which is, especially in developing countries, aggravated by the lack of necessary high-quality data. According to Global Financial Integrity (GFI) there are three forms of unrecorded money moving across borders:

·         Corrupt: Proceeds of bribery and theft by government officials.

·         Criminal: Proceeds of drug trading, human trafficking, etc

·         Commercial: Proceeds arising from import and export transactions conducted so as to manipulate customs duties, VAT taxes, income taxes, excise taxes, or other sources of government revenues.

In analyzing illicit financial flows (IFFs), GFI utilizes sources of data and analytical methodologies that have been used by international institutions, governments, and economists for decades

You might find World Bank's Winning the Tax Wars: Global Solutions for Developing Countries seminar recording interesting.  In addition, WB, IMF and the UN joined forces and you may find good references http://www.buenosairesherald.com/article/212898/imf-world-bank-un-unite-to-fight-tax-evasion

http://www.buenosairesherald.com/article/212898/imf-world-bank-un-unite-to-fight-tax-evasion

Dear Charbel,

In your formula for income tax calculation, how do you account for GNP produced by non-taxable persons?

Thank you,

Paul

Dear Charbel,

Tank you very much for the interesting answer!

Paul

Start with samples of people in various typical roles: fisherman, farmer, etc. Investigate their tax situation in great detail. Multiply by the aggregate number in each role.

Dear all, your answers are illuminating and enriching. Tax evasion is a serious problem in developing countries particularly with many of such countries currently experiencing recession. Thank you all for sharing your thoughts on the issue.

Dear Peter,

Thank you for your suggestion! Though, it seems to me that it may prove difficult to collect data (in terms of time, costs and response rate) from a sample that would allow to drive statistically reliable conclusions about the whole population of a certain group.

Paul  

Paul, this may be less difficult than it seems. Let's focus on fishermen for a moment. First, go to the port early in the morning. Count the fishing boats that go out. Next, show up again in the afternoon to count the fish that are unloaded from a boat. Multiply by the number of boats and divide by the number of persons per boat. Now you have the daily gross income of a fisherman. (this is not an original idea)  Best wishes, Peter

Dear Peter,

Thank you for the clarification. But from your example I can only arrive at an average number of fish cathed per fisherman. There is no monetary value which is crucial for taxation. Also, there may be different kind of fish, resulting in different income to the fisherman if he is going to sell the fish. Moreover, I assume that even in developing countries not all fishermen going out are self-employed. To the contrary, the majority of the fishermen will be employees of the boat owner or the boat lessee. Thus, the mere number of the fish catched per fisherman does not allow any conclusion about his income / salary. Therefore, such a measure appears to me to be too aggregating and too rough to support tax policy and tax research.

Paul

There is a very large literature on this subject which you may not have seen because it is classified under the heading of 'informal economy', 'shadow economy', 'undeclared work', hidden economy' etc. This literature approaches the subject using broadly either indirect measurement methods, which uses data collected for other purposes to estimate its size, or direct surveys. The former tend to produce larger estimates than the latter.

To get you started, have a read of the following

Research Designing survey methods to evaluate the undeclared economy:...

Influential people from big industries are always evading tax in most of the countries which include not only developing but also developed,though mode of evasion are very sophisticated there as compared to poor/developing countries.