Tax evasion and financial instability

Abstract

Purpose The purpose of this paper is to explore the association between tax evasion and financial instability. The discussion also examines the effects of tax evasion for financial instability. Design/methodology/approach This paper is an exploratory study on the effect of tax evasion on financial instability Findings The paper shows that tax evasion can reduce the tax revenue available to governments to manage the economy and can weaken the government’s ability to promote stability in financial systems, whereas on the contrary, taxpayers who evade taxes feel they can use the evaded tax money to rather improve their own financial stability. Originality/value This paper presents the first attempt to carefully examine the association between tax evasion and financial instability.

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