Reappraising the Tax Gap
The tax gap has been described as the amount of tax jurisdictions do not collect, caused by the tax system not being appropriately complied with—in the manner intended by the tax authority—given the current tax laws in operation. That description does, however, ignore the fact that substantial parts of their potential tax revenues are not collected by all governments as a result of their decisions not to tax some tax bases, or because of granted tax allowances, reliefs and exemptions, many of which in turn provide opportunities for tax abuse. This chapter considers the implications of reframing the tax gap to include these tax losses that arise as a result of government policy and suggests the changes in perception, including in macro-economic as well as micro-economic thinking, that might result if this were done. For this, the use of tax spillover analysis is recommended.