IDEAS home Printed from https://ideas.repec.org/a/bjz/ajisjr/1784.html
   My bibliography  Save this article

The Financial and Economic Implications of Underground Economy: The Nigerian Perspective

Author

Listed:
  • Cordelia Onyinyechi Omodero

Abstract

The economic and financial effect of underground economy in all emerging countries is of tremendous concern. Sometimes due to the inputs of the sector to economic growth of nations, it is usually assumed that the government has nothing to lose, meanwhile it goes beyond the seemingly economic benefits, but provides an avenue whereby the government has to suffer financial losses through unavoidable and inherent tax evasions. This study evaluates the impact of shadow economy using the transaction approach and the MIMIC approach which helped to determine the size of the shadow economy as a percentage of GDP and the tax revenue losses suffered by the government for a period spanning from 1991 to 2018. Ordinary least squares method is used to examine the impact of tax revenue earned and lost on Nigeria’s GDP. The regression results indicate that tax revenue earned has a significant positive impact on economic growth, while the tax revenue loss has a significant negative influence on GDP. The study finds that underground economy activities do more harm to the government than good and is also detrimental to Nigeria’s economic progress. Therefore the suggestion among others is that the legal activities among them should be formalized and taxed while the unlawful ones should be exterminated

Suggested Citation

  • Cordelia Onyinyechi Omodero, 2019. "The Financial and Economic Implications of Underground Economy: The Nigerian Perspective," Academic Journal of Interdisciplinary Studies, Richtmann Publishing Ltd, vol. 8, July.
    • Handle: RePEc:bjz:ajisjr:1784
    as

    Download full text from publisher

    File URL: https://www.richtmann.org/journal/index.php/ajis/article/view/10467
    Download Restriction: no
    File URL: https://www.richtmann.org/journal/index.php/ajis/article/view/10467/10096
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Fethi Ogunc & Gokhan Yilmaz, 2000. "Estimating The Underground Economy In Turkey," Discussion Papers 0004, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    2. Putniņš, Tālis J. & Sauka, Arnis, 2015. "Measuring the shadow economy using company managers," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 471-490.
    3. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo.
    4. Leandro Medina & Mr. Friedrich Schneider, 2018. "Shadow Economies Around the World: What Did We Learn Over the Last 20 Years?," IMF Working Papers 2018/017, International Monetary Fund.
    5. Leandro Medina & Mr. Andrew W Jonelis & Mehmet Cangul, 2017. "The Informal Economy in Sub-Saharan Africa: Size and Determinants," IMF Working Papers 2017/156, International Monetary Fund.
    6. Tanzi, Vito, 1999. "Uses and Abuses of Estimates of the Underground Economy," Economic Journal, Royal Economic Society, vol. 109(456), pages 338-347, June.
    7. Schneider, Friedrich, 2011. "The Shadow Economy and Shadow Economy Labor Force: What Do We (Not) Know?," IZA Discussion Papers 5769, Institute of Labor Economics (IZA).
    8. Friederike Welter & David Smallbone & Anna Pobol, 2015. "Entrepreneurial activity in the informal economy: a missing piece of the entrepreneurship jigsaw puzzle," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 27(5-6), pages 292-306, June.
    9. Buehn, Andreas & Dell'Anno, Roberto & Schneider, Friedrich, 2012. "Fiscal illusion and the shadow economy: Two sides of the same coin?," MPRA Paper 42531, University Library of Munich, Germany.
    10. B. Mathias & Sean Lux & T. Russell Crook & Chad Autry & Russell Zaretzki, 2015. "Competing Against the Unknown: The Impact of Enabling and Constraining Institutions on the Informal Economy," Journal of Business Ethics, Springer, vol. 127(2), pages 251-264, March.
    11. Arne Jon Isachsen & Steiner Strøm, 1985. "The Size And Growth Of The Hidden Economy In Norway," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 31(1), pages 21-38, March.
    12. Feige, Edgar L. & Urban, Ivica, 2008. "Measuring underground (unobserved, non-observed, unrecorded) economies in transition countries: Can we trust GDP?," Journal of Comparative Economics, Elsevier, vol. 36(2), pages 287-306, June.
    13. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Omodero Cordelia Onyinyechi, 2019. "The Financial and Economic Implications of Underground Economy: The Nigerian Perspective," Academic Journal of Interdisciplinary Studies, Sciendo, vol. 8(2), pages 155-167, July.
    2. Colin C. Williams, 2023. "A Modern Guide to the Informal Economy," Books, Edward Elgar Publishing, number 18668, March.
    3. Feige, Edgar L., 2015. "Reflections on the meaning and measurement of Unobserved Economies: What do we really know about the “Shadow Economy”?," MPRA Paper 68466, University Library of Munich, Germany.
    4. Omodero Cordelia Onyinyechi, 2019. "The Consequences of Shadow Economy and Corruption on Tax Revenue Performance in Nigeria," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 29(3), pages 64-79, September.
    5. Oksana Nezhyvenko, 2018. "Informal Employment in Ukraine and European Union Transition Countries," Erudite Ph.D Dissertations, Erudite, number ph18-03 edited by Philippe Adair, September.
    6. Leandro Medina & Friedrich Schneider, 2019. "Shedding Light on the Shadow Economy: A Global Database and the Interaction with the Official One," CESifo Working Paper Series 7981, CESifo.
    7. Schneider Friedrich & Buehn Andreas, 2017. "Shadow Economy: Estimation Methods, Problems, Results and Open questions," Open Economics, De Gruyter, vol. 1(1), pages 1-29, March.
    8. Arzhenovskiy, Sergey, 2023. "Estimate of shadow economy dynamics in Russia and regions: The inflationary aspect," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 69, pages 121-140.
    9. Nezhyvenko, O., 2019. "Indirect or Macroeconomic Methods in Measuring the Informal Economy," Journal of Applied Management and Investments, Department of Business Administration and Corporate Security, International Humanitarian University, vol. 8(4), pages 201-215, December.
    10. Arezzo, Maria Felice & Horodnic, Ioana A. & Williams, Colin C. & Guagnano, Giuseppina, 2024. "Measuring participation in undeclared work in Europe using survey data: A method for resolving social desirability bias," Socio-Economic Planning Sciences, Elsevier, vol. 91(C).
    11. Folorunsho Monsuru Ajide & James Temitope Dada & Johnson Kolawole Olowookere, 2022. "Shadow economy and foreign direct investment in Nigerian manufacturing industry," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 23(2), pages 156-180.
    12. Nedra Baklouti & Younes Boujelbene, 2020. "A simultaneous equation model of economic growth and shadow economy: Is there a difference between the developed and developing countries?," Economic Change and Restructuring, Springer, vol. 53(1), pages 151-170, February.
    13. Sahnoun, Marwa & Abdennadher, Chokri, 2019. "The nexus between unemployment rate and shadow economy: A comparative analysis of developed and developing countries using a simultaneous-equation model," Economics Discussion Papers 2019-30, Kiel Institute for the World Economy (IfW Kiel).
    14. Korhan K. Gokmenoglu & Aysel Amir, 2023. "Investigating the Determinants of the Shadow Economy: The Baltic Region," Eastern European Economics, Taylor & Francis Journals, vol. 61(2), pages 181-198, March.
    15. Cordelia Onyinyechi Omodero, 2020. "Taxation Income, Graft and Informal Sector Operations in Nigeria in Relation to Other African Countries," International Journal of Financial Research, International Journal of Financial Research, Sciedu Press, vol. 11(2), pages 163-172, April.
    16. Emmanuel Umoru Haruna & Usman Alhassan, 2022. "Does digitalization limit the proliferation of the shadow economy in African countries? An in‐depth panel analysis," African Development Review, African Development Bank, vol. 34(S1), pages 34-62, July.
    17. Dagmara Nikulin & Ewa Lechman, 2021. "Shadow Economy in Poland: Results of the Survey," SpringerBriefs in Economics, in: Shadow Economy in Poland, chapter 0, pages 49-65, Springer.
    18. Cong Minh Huynh, 2020. "Shadow economy and air pollution in developing Asia: what is the role of fiscal policy?," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 22(3), pages 357-381, July.
    19. Cong Minh Huynh & Tan Loi Nguyen, 2020. "Fiscal policy and shadow economy in Asian developing countries: does corruption matter?," Empirical Economics, Springer, vol. 59(4), pages 1745-1761, October.
    20. repec:ces:ifodic:v:14:y:2017:i:4:p:19267788 is not listed on IDEAS
    21. Friedrich Schneider & Robert Klinglmair, 2004. "Shadow economies around the world: what do we know?," Economics working papers 2004-03, Department of Economics, Johannes Kepler University Linz, Austria.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bjz:ajisjr:1784. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Richtmann Publishing Ltd (email available below). General contact details of provider: https://www.richtmann.org/journal/index.php/ajis .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.