Fiscal illusion and the shadow economy: Two sides of the same coin?
AbstractThis paper presents an empirical analysis of the relationship between fiscal illusion and the shadow economy for 104 countries over the period 1989–2009. We argue that both unobservable phenomena are closely linked to each other, as the creation of a fiscal illusion may be helpful if governments want to control shadow economic activities. Using a MIMIC model with two latent variables we confirm previous findings on the driving forces of the shadow economy and identify the main determinants and indicators of fiscal illusion. Most importantly, we find that fiscal illusion negatively affects the shadow economy: Concealing the real tax burden through fiscal illusion potentially contributes to the government’s efforts to repress shadow economic activities.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 42531.
Date of creation: 09 Nov 2012
Date of revision:
Fiscal illusion; shadow economy; MIMIC model; latent variables; tax burden; tax complexity;
Other versions of this item:
- Andreas Buehn & Roberto Dell'Anno & Friedrich Schneider, 2013. "Fiscal illusion and the shadow economy: Two sides of the same coin?," Economics working papers, Department of Economics, Johannes Kepler University Linz, Austria 2013-21, Department of Economics, Johannes Kepler University Linz, Austria.
- E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-24 (All new papers)
- NEP-IUE-2012-11-24 (Informal & Underground Economics)
- NEP-MAC-2012-11-24 (Macroeconomics)
- NEP-PBE-2012-11-24 (Public Economics)
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