What is Shadow Economy

The weight of the state in economic and social life is very important even if it might differ from country to country. The state provides particular public services and needs to the various funding sources to provide these services. Taxes constitute the largest share of financial sources needed by the state to operate effectively. However, taxes are often not welcomed by taxpayers, creating the unwanted behavior of tax evasion. The purpose of this chapter is to reveal the tax structures of Latin American countries and to examine tax morale as an important determinant in shaping the attitudes of taxpayers in Latin America. This chapter shows the most important component of tax revenues in Latin American countries constitutes consumption taxes instead of income taxes, in contrast to developed regions such as those in OECD countries. It shows the tax structure in Latin American countries reflects the typical tax structure in developing countries. It is also observed that average tax morale is higher in South American countries, such as Venezuela, Paraguay, and Argentina, than in other areas, although it has a changing property over time. Moreover, the chapter shows tax morale is associated with financial indicators (satisfaction with income, the present economic situation, income distribution, and the functioning of the market economy), policy indicators (satisfaction with democracy, confidence with government), and demographic indicators (age, education).