Tax awareness and “free rider” problem in taxes

Abstract

Purpose The purpose of the work is to study the “free rider problem” in taxes and determine the probability of the fact that shadow economy in modern Russia is caused by this problem. Methodology For determining the probability of the fact that shadow economy in modern Russia is caused by the “free rider problem” in taxes, the authors conduct a complex logical analysis of information and analytical materials of the Global Financial Literacy Excellence Center, National Research University “Higher School of Economics”, the World Bank Group, PricewaterhouseCoopers, Analytical Center “National Agency for Financial Studies”, and the All-Russian Public Opinion Research Center, which contain expert evaluations of the level of financial awareness and, in particular, tax awareness in modern Russia, as well as their averaging for obtaining the most realistic picture (as of the 2018 data). Results The authors show that the “free rider problem” in taxes is an alternative (opposite) phenomenon to tax opportunism, related to unintentional or insufficiently conscious violation of tax law, which is not profitable for the state and for tax “free riders”. In modern Russia, the level of financial awareness of the population and, in particular, tax awareness is at the level of 50%. This means that there’s high probability (0.5) that shadow economy in Russia could be caused by the “free rider problem” in taxes. Recommendations For solving the “free rider problem” in taxes, the authors developed a managerial concept that ensures reduction of the volume of shadow economy, growth of tax revenues, overcoming of deficit of state budget, and more successful execution of state’s liabilities (guarantees) before the society.