The basis of funding each state are taxes, mandatory public benefits that are taken from taxpayers in order to meet its public expenditure on goods and services that people use every day. The existence of the tax causes the resistance of taxpayers and payment of the same. Precisely this resistance has created tax evasion, the problem of this research. It is more or less present in all, including the tax system of the Republic of Croatia. The aim of the work is with the available literature to explain the causes of tax evasion in general, to answer the question of cause and effect that tax evasion leaves on the entire economy and to analyze measures to prevent the same. Although the growth of tax revenues, and with total income of the country due to the underground economy, their growth slowed (it could be bigger than it is). Tax authorities usually react in a way that increased tax evasion, due to the growth of the underground economy, counteracts the increase in tax rates which represents an even bigger burden for taxpayers. To reduce tax evasion, it is recommended the use of institutional, legal and legislative measures and it is also important cooperation between domestic and international tax authorities.