The Evolution of Tax Evasion in the Czech Republic : A Markov Chain Analysis

We use a dataset of 1062 individuals from the Czech Republic to forecast the evolution of tax evasion in that country. We ask each respondent how intensely (never, sometimes, often) he evaded taxes in 1995, 1999, and 2000, to calculate probabilities the average individual will move between these categories of evasion in any given year. These "transition" probabilities allow us to predict a rising tide of tax evasion in the next decade. We estimate the reduced form parameters which determine evasion and suggest how government might influence these parameters to prevent the Czech Republic from bogging down in a permanent mire of tax evasion