The Underground Economy: Minimizing the Size of Government
AbstractIn this paper we outline the results of some extensive econometric modelling that has been undertaken to establish a time-series of the size of the New Zealand Hidden Economy from 1968 to 1994. The derivation of these data has facilitated a good deal of associated research, and here we draw on those findings to comment, in particular, on the relationship between taxation policy and the effects taxes - in terms of both the overall tax burden and also the nature of the "tax mix", as between direct and indirect taxes, etc.. Our research in this area has revealed a clear and statistically significant link between high taxes and the size of the underground economy. Moreover, we have been able to establish the extent to which reductions in the tax burden, and changes to its "mix", can lower illicit activity in the economy. Interestingly, and very importantly, this in turn enables us to establish an "optimal" aggregate tax rate, if the objective is maximize the impact on the Hidden Economy. Many of the broad lessons that emerge from this research have applicability in the Canadian context, and more specific work of this type with Canadian data is currently being undertaken by the author and colleagues.
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Bibliographic InfoPaper provided by Department of Economics, University of Victoria in its series Department Discussion Papers with number 9801.
Length: 18 pages
Date of creation: 31 Mar 1998
Date of revision:
Publication status: Forthcoming in H. Grubel (ed.), "How to Spend the Fiscal Dividend: What is the Optimal Size of Government?" (Fraser Institute, Vancouver, B.C., 1998).
Note: This is a revised version of a presentation to the Fraser Institute Conference on "How to Spend the Fiscal Dividend", Ottawa, Ontario, December 1997
Contact details of provider:
Postal: PO Box 1700, STN CSC, Victoria, BC, Canada, V8W 2Y2
Web page: http://web.uvic.ca/econ
More information through EDIRC
Hidden Economy; Underground Economy; Tax Evasion; Tax Gap;
Other versions of this item:
- David E. A. Giles, 1998. "The Underground Economy: Minimizing the Size of Government," Econometrics Working Papers 9808, Department of Economics, University of Victoria.
- David E.A. Giles, 1998. "The Underground Economy: Minimizing the Size of Government," Econometrics Working Papers 9801, Department of Economics, University of Victoria.
- C5 - Mathematical and Quantitative Methods - - Econometric Modeling
- H1 - Public Economics - - Structure and Scope of Government
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
This paper has been announced in the following NEP Reports:
- NEP-ALL-1998-10-19 (All new papers)
- NEP-CDM-1998-08-31 (Collective Decision-Making)
- NEP-EEC-1998-10-19 (European Economics)
- NEP-PBE-1998-10-19 (Public Economics)
- NEP-POL-1998-08-31 (Positive Political Economics)
- NEP-PUB-1998-08-31 (Public Finance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David Giles, 1999. "The rise and fall of the New Zealand underground economy: are the responses symmetric?," Applied Economics Letters, Taylor & Francis Journals, vol. 6(3), pages 185-189.
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- Philip Cagan, 1958. "The Demand for Currency Relative to Total Money Supply," NBER Books, National Bureau of Economic Research, Inc, number caga58-1.
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- David E. A. Giles, & Patrick J. Caragata, 1998. "The Learning Path of the Hidden Economy:Tax and Growth Effects in New Zealand," Econometrics Working Papers 9805, Department of Economics, University of Victoria.
- Patrick J. Caragata, & David E. A. Giles, 1998. "Simulating the Relationship Between the Hidden Economy and the Tax Level and Tax Mix in New Zealand," Econometrics Working Papers 9804, Department of Economics, University of Victoria.
- David Giles, 1997. "Causality between the measured and underground economies in New Zealand," Applied Economics Letters, Taylor & Francis Journals, vol. 4(1), pages 63-67.
- Roberto Dell’Anno & Miguel Gómez-Antonio & Angel Pardo, 2007.
"The shadow economy in three Mediterranean countries: France, Spain and Greece. A MIMIC approach,"
Springer, vol. 33(1), pages 51-84, July.
- Roberto Dell’Anno & Miguel Gómez-Antonio & Angel Alañon-Pardo, 2007. "The shadow economy in three Mediterranean countries: France, Spain and Greece. A MIMIC approach," Empirical Economics, Springer, vol. 33(1), pages 197-197, July.
- Bame-Aldred, Charles W. & Cullen, John B. & Martin, Kelly D. & Parboteeah, K. Praveen, 2013. "National culture and firm-level tax evasion," Journal of Business Research, Elsevier, vol. 66(3), pages 390-396.
- Max Gillman & Dario Cziráky, 2004. "Inflation and Endogenous Growth in Underground Economies," The wiiw Balkan Observatory Working Papers 050, The Vienna Institute for International Economic Studies, wiiw.
- Máximo Torero & Miguel Robles & Manuel Hernández & Jorge de la Roca & Maureen Webber & Desmond Thomas, 2006. "The Informal Sector in Jamaica," IDB Publications 21978, Inter-American Development Bank.
- Buehn, Andreas & Schneider, Friedrich, 2009. "Corruption and the Shadow Economy: A Structural Equation Model Approach," IZA Discussion Papers 4182, Institute for the Study of Labor (IZA).
- Andreas Buehn & Friedrich Schneider, 2012. "Corruption and the shadow economy: like oil and vinegar, like water and fire?," International Tax and Public Finance, Springer, vol. 19(1), pages 172-194, February.
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