MEASURING THE TAX REVENUE AND TAX BASE EROSION; EVIDENCE FROM TAIWAN

Basically, tax evasion is a gamble taken by private agents and limited “public-sector”. It is rather difficult to get accurate information about the extent of underground economy activities in the goods and labour market, because all individuals engaged in those activities wish not to be identified. Undoubtedly, engaging in the research can be considered as a scientific passion for knowing the unknown. To explore the relationship among economic growth, tax rate, debt, consumer price index and tax revenue. This study differs from the traditional methodology. We adopt SUR-OLS method and Threshold approach for estimating the response of economic growth on total tax revenue,direct tax revenue and indirect tax revenue in Taiwan from 1991-2020. This paper further discusses the response of total tax, direct tax and indirect tax to the fluctuation of tax rate. We show that as the tax rate is between 12.59% and 13%, the increase of income leads to the decrease instead of the increase for direct tax revenue, resulting in serious tax base erosion. That is, the relationship between GDP and TTR presents a Nshaped relationship. However, indirect tax does not exist any tax rate threshold effect, On the other hand, with the increase of GDP, indirect tax revenue also increases.