Tax Evasion in Times of Economic Crisis: Consequences and Solutions

This essay argues against governmental leniency regarding tax evasion, particularly during economic crises, emphasizing its detrimental effects on financial stability and economic growth. It highlights taxation's vital role in government finance and the potential for increased tax avoidance due to lenient policies, which can disrupt income distribution and global financial flows. The essay explores the consequences of tax evasion, including reduced government expenditure on public services, declining GDP, increased income inequality, and decreased government intervention in economic development. It also examines the impact on government budgets and international borrowing. The essay suggests that governments should not adopt lenient policies but instead implement a common international tax system and strong regulations to combat tax evasion and promote financial stability. The essay concludes by emphasizing the need for international cooperation and transparent tax systems to mitigate the negative impacts of tax evasion on the world economy.

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Should the governments become more lenient especially now that the economic crisis is
affecting every part of our societies? What will the consequences be?
No, government should not become more lenient in the issue of tax evasion instead government
should take necessary steps in solving the problem related to tax evasion as most of the countries
are facing financial crisis. Taxation is an important source of government finance in all the
countries of the world and contributes in the lager extent in the development of economy
(Kugler, 2018). Leniency in the tax structure and policies may more resultant into tax avoidance
by the public which will again to be an area to concern for the government because that will
directly impact on distribution of income and flow of money across the world. The concept of
globalization of the world economy and the loop holes in the international tax system have
developed a climate encouraging to the development of strong financial paradise which due to
legislation and taxation make free regime tax that prove to be the lenient practices by the
authorities. Tax evasion is a problem that adversely affects the budgetary revenue of the
countries in the world with higher taxation and therefore give rise to more tax avoidance or
evasion, mainly that law and unlawful migration to capital is the reason of financial instability
and by avoidance of financial control it resultant into financial crisis (Mihokova, et al., 2018).
Tax avoidance or evading brings disruptions in the financial system of countries mainly of
developing countries as tax evasion leaves very little amount with government to intervene and
this pressurizing them to more rely on the debt structure (Alm, et al., 2016). At the time of
economic crisis there is need of the interference of the government in order to bring financial
stability in the economy but that tax evasion and lenient tax policies are the major challenge for
stabilization.
There are some consequences of tax evasion that includes:
 This may increase the amount of resources sustained by the businesses but it also reduces
the amount of government expenditure on the public, thus leading to negative
consequences for economic growth of the countries.
 Due to leniency on the activities of tax evasion, the main impact is seen on the economic
growth and GDP of the countries that will be declining and it will bring economic
instability.

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 The main consequence of tax evasion will be on society as it will increase the gap
between poor and rich people or prove to be beneficial for improving standard of living
for wealthy people that will leads to problem of inequality in income distribution mainly
for the developing countries.
 Tax evasion decreases the chances of government intervention in the economic
development aspects because as the problem of tax evasion will create financial
difficulties for the government of the countries due to that they will unable to implement
strong economic policies and will be inefficient in providing essential products and
services to citizen of their country.
 It will impact on cost of raising taxes and will increase the government operating costs.
 Tax evasion put the government into difficulty to fund the government’s budget as per
the plan this will eventually leads to fiscal deficit in the country balance of payment
account as countries have to borrow money from International institutions which puts
further strain on fragile economies (Alstadsaeter, et al., 2018).
 Tax evasion has any political implications that include increasing debt structure of the
country that eventually reduce the development and growth of the country and will
impact on image of country in global platform (Kaplanoglou & Rapanos, 2013).
It is important to find out the solution for problem of tax evasion otherwise consequences will be
more harmful for the economy, society and government at the global platform. Governments of
different countries have to decide a common international tax system in order to reduce the tax
burden on businesses that might reduce the amount of tax evasion in the world (Tagkalakis,
2013). Any strict action by the international forum on this issue will be helpful in overcoming
the financial crisis and to stabilize the economic situations.
“Removing those procedures that facilitate tax evasion is part of a broader push to clean up one
of the more debatable sides of a globalized economy”.
Government leniency at the time of crisis will effect directly on the financial instability as there
is connection between the tax evasion and financial instability in the economy. The tax
avoidance and speculation activity can be stopped by implementing the best tax practices by the
international financial regulatory (Braithwaite, 2017). In order to face the crisis and to get the

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solution of tax evasion and tax avoidance the international tax cooperation need a
comprehensive, multilateral system for acquiring and exchanging information for all the tax
reasons with proper safety for taxpayers. The proper system by the government and strict
regulation by the authorities will eventually increase the number of tax payers and that resultant
in the reduction of tax evasion activities (Auerbach & Smetters, 2017).
It is concluded that government should not be more lenient in relation to tax evasion as this
leniency will increase the amount and activities of tax avoidance by the tax payers and that
eventually will be harmful for the economy and resultant in financial instability in the world. It is
studied that tax evasion has more number of negative consequences in the economy and
government. The main consequence of leniency is that government intervene in the economic
activities will be reduced as they do not have amount to invest for citizens of the country. This is
mainly a problem with developing countries as there most of the economic growth and GDP
depend on the government activities and intervene. Thus, further leniency by the government in
the tax evasion brings financial instability so instead of being lenient in relation to this problem
international authorities should make strong and transparent international tax system to reduce
the consequences of tax evasion on the world economy.

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