The Impact of Fiscal Deficit on Tax Evasion: An Analytical Study

Abstract

This study examines the relationship between fiscal deficit and tax evasion through a theoretical and applied analysis that clarifies the nature of interaction between the two variables. The findings indicate that a fiscal deficit often leads to increased pressure on tax policies, which may result in higher rates of tax evasion, especially in the presence of weak tax fairness and inefficient financial administration. The study also shows that tax evasion, in turn, contributes to deepening the fiscal deficit by reducing public revenues. It concludes that this relationship is characterized by overlap and mutual influence, necessitating the adoption of comprehensive reform policies based on improving the tax system, enhancing transparency, and rationalizing public expenditure.

The efficiency of tax administration plays a crucial role in determining the level of tax compliance and curbing tax evasion. A lack of tax equity and low trust between taxpayers and the government are among the primary factors fueling tax evasion. Unbalanced tax policy can yield counterproductive results, contributing to increased evasion rather than higher revenues. Transitioning to digital and electronic systems within tax administration helps reduce opportunities for evasion and enhances transparency. Addressing the fiscal deficit cannot rely solely on the revenue side; it also requires rationalizing public spending and improving its efficiency.