A CHINESE RECIPE FOR CURBING THE EVASION OF COMMODITY TAXES?

Tax evasion is a widespread phenomenon. Indirect anecdotal evidence is provided by the latest public economics textbooks, which regularly include chap-ters on tax evasion; this would have been unusual just ten years ago. A recent textbook on public eco-nomics (Hindriks and Myles 2006) states that the hidden economy (which forms the primary basis for tax evasion) has reached at least 10 percent of GDP in advanced countries and it can grow to much high-er levels (sometimes topping 70 percent) in develop-ing countries. Moreover, the trend shows no sign of stopping. Standard economic models focus on two basic means of discouraging tax evasion. One is the probability of audit and the other is the steepness of sanctions t