This paper addresses the major weakness of measuring tax evasion through business and
household surveys, namely the reluctance of respondents to answer truthfully due to the threat
of disclosure. First, we assess the merits of a novel questioning method to gather information
about tax evasion by means of business surveys. This approach allows estimating the prevalence
of tax evasion, but it does not allow identifying whether the individual firm engages in tax evasion
or not, therefore providing incentives for survey participants to answer truthfully. Second
and contrary to most other business surveys, we differentiate between two common modes of
tax evasion, namely underreporting of sales and informal supplements to official wages (‘envelope
wages’). Using evidence from Serbia, we show that the estimated share of firms which underreport
sales and wages, respectively, by at least 10% is higher under the crosswise model
compared to the case when conventional questioning methods applied in business surveys such
as the World Bank Enterprise Surveys are used. However, the difference is only significant with
respect to sales. These results appear to be robust to a number of modifications, and we explore
various potential causes that lead to these results
