Re-assessing the merits of measuring tax evasion through business surveys: an application of the crosswise model

Self-assessments by respondents in surveys are often the only available measure of tax evasion in developing countries at the microeconomic level. However, they suffer from the reluctance of respondents to reveal their own illicit behavior. This paper evaluates whether this weakness of self-assessments can at least partially be overcome through a novel questioning method, the crosswise model, which allows estimating the prevalence of tax evasion, but not identifying whether the individual respondent engages in tax evasion or not. Using evidence from Serbia, we show that crosswise model-based estimates of the share of firms which significantly underreport sales exceed those obtained from conventional methods by around 10 % points or more. With respect to wage underreporting to evade payroll tax and social security contributions, we do not find differences. These results appear to be robust to a number of modifications, and we explore various potential causes that lead to these results.