Fresh Assessment of the Underground Economy and Tax Evasion in Pakistan: Causes, Consequences, and Linkages with the Formal Economy
AbstractRise in the underground economy creates problems for the policy-makers to formulate economic policies, especially the monetary and fiscal policies. It is found that if there was no tax evasion, budgets balance might have been zero and positive for some years and we would not have needed to borrow as much as we had borrowed. It is concluded that the impact of the underground economy is significant to the movements of the formal economy, but the impact of formal economy is insignificant in explaining the movements in the underground economy. In the long run, underground economy and official economy are positively associated. It is estimated that the underground economy ranges between Rs 2.91 trillion and Rs 3.34 trillion (54.6 percent of GDP to 62.8 percent of GDP respectively) in 2005 and tax evasion ranges between Rs 302 billion and Rs 347 billion (5.7 percent of GDP to 6.5 percent of GDP respectively) in 2005. Underground economy and tax evasion were increasing very rapidly in the early 1980s but the rate of increase accelerated in the 1990s. It declined in 1999, but reverted to an increasing trend until 2003. It declined again in 2004 and 2005.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 2226.
Date of creation: 2007
Date of revision:
Underground Economy; Tax Evasion;
Other versions of this item:
- M. Ali Kemal, 2007. "A Fresh Assessment of the Underground Economy and Tax Evasion in Pakistan : Causes, Consequences, and Linkages with the Formal Economy," Microeconomics Working Papers 22200, East Asian Bureau of Economic Research.
- M. Ali Kemal, 2007. "A Fresh Assessment of the Underground Economy and Tax Evasion in Pakistan: Causes, Consequences, and Linkages with the Formal Economy," PIDE-Working Papers 2007:13, Pakistan Institute of Development Economics.
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
This paper has been announced in the following NEP Reports:
- NEP-ACC-2007-03-17 (Accounting & Auditing)
- NEP-ALL-2007-03-17 (All new papers)
- NEP-CWA-2007-03-17 (Central & Western Asia)
- NEP-MAC-2007-03-17 (Macroeconomics)
- NEP-PBE-2007-03-17 (Public Economics)
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