Tax Evasion and Education Level: Evidence from the European Union Countries

Abstract

This paper analyses the impact of education level and civic income on tax evasion. Tax evasion is an illegal attempt to deliberately avoid paying taxes by individuals, companies, corporations, funds and other institutions. There is a certain amount of research on this issue in the world academic literature, but a scarce number of studies dedicated to the countries of the European Union (EU) is noticeable. Therefore, for the authors of the research, this fact was the basic motivational source. A sample of nine EU countries was selected for the sample: Malta, Cyprus, Italy, Spain, Austria, Belgium, Denmark, Finland and Sweden. The TAX criteria for selecting the countries in the sample were EU membership, geopolitical position and business culture. Eurostat macro data on the net income of the working population, the share of the working population by level of education and tax evasion costs for EU countries were used. The econometric method was used in the research. In order to analyse the impact of education and net income on tax evasion, a regression model was set up. Based on the results for the case of tertiary educated, a set of two predictor variables explains 60.4% of the tax evasion variability. The remaining 39.6% could be attributed to other variables that were not included in the model. Based on the statistical significance, the variable "tertiary education" has a contribution to tax evasion. If tertiary education jumps by one point, tax evasion falls by -6.263. The contribution of the variable "income of tertiary educated" exists, but is not statistically significant, so it cannot be taken into account. In the case of low-educated citizens, the value of R2, as well as education contribution and income impact, are not statistically significant, so they cannot be taken into account. When the results of our research were compared with similar research conducted outside the EU, certain differences were noticeable. While our research found an unequivocal impact of tertiary education on reducing tax evasion, in surveys that targeted countries outside the EU (McGee, 2012), it was concluded that wealthier citizens were generally more educated but also were taxed higher by the state. Therefore, they tend to view tax evasion as a positive behaviour. Also, the results of the Honk Kong study (Kwok and Yip, 2018) shown that the positive effect of tax education, in the form of non-academic courses, on tax compliance is weaker for postgraduates than undergraduates. Contradictory results can be explained by a different business culture of EU states comparing to non-European countries.