Tax Evasion in Europe: Causes and Consequences

Abstract Corruption remains a perennial problem in Eastern Europe, especially in countries that have a socialist influence. This study examines the drivers, the effects on economic growth, and the measures that governments take to address this vice in these economies. Considering the empirical evidence and case studies from Bulgaria, Romania, and Hungary, this study finds that factors that have led to tax evasion are archaic taxation systems, high taxes, and inefficiency in the administrative systems. Descriptive and inferential statistics show that high taxes and unemployment have a positive relationship with tax evasion while GDP has a negative non-significant relationship. There is a decrease in government revenue which implies that fewer services will be provided to the public and increased social and economic disparity. Previous approaches to combating evasion include the simplification of the tax code and better enforcement, which have produced only limited success. The study also recommends that governments should broaden the policies to enhance the efficiency of the tax system by simplifying it, improving the mechanisms of compliance, and creating an investment-friendly environment. Thus, this research provides a historical and economic analysis of tax evasion and its impact on transitional economies and provides recommendations for how to reduce the effects of tax evasion on development. These results are valuable for policymakers who intend to improve fiscal sustainability and economic development in the Eastern European region.