Tax Evasion and Set Backs of the Shadow Economy in Albania

Various business enterprises operating in the informal sector of the economy are attracting more and more attention. “Cheating the government” is a thriving practice in most countries, not only for countries still in a transition of economic development, but also for countires that have e developed fiscal system. Tax and customs fraud remain a real challenge for Albania’s fiscal administration. Several studies conducted in Albania prove that the degree of informal business transactions continues to be above the regional average at around 30%. The tax burden is viewed, in both empirical and theoretical studies, as the main determinant of tax evasion and the shadow economy. A fundamental difficulty in analyzing tax evasion is the lack of reliable information on taxpayer compliance. The anticorruption efforts have to focus on a real reform of the administrative system, whereas the citizen’s perception on corruption is mainly based on personal experiences in direct connection with the state institutions. After all, tax evasion is illegal, and individuals have strong incentives to conceal their cheating, given financial and other penalties that are imposed on individuals who are found cheating on their taxes. Both the public sector as well as the private sector should become more responsible, so that the public institutions are able to carry out their obligations under integrity conditions and without external pressure or implication. This paper gives an overview of fiscal evasion with a special focus on Albania. In particular, we concentrate on fiscal policy implications. DOI: 10.5901/mjss.2014.v5n13p398