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Asymmetric Responses of the Underground Economy to Tax Changes: Evidence from New Zealand Data

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  • Giles, David E A
  • Werkneh, Gugsa T
  • Johnson, Betty J

Abstract

This paper considers the relationship between taxes and the size of the New Zealand underground economy. Previous studies indicate that a positive relationship exists in this and certain other countries. This paper addresses the question: "Is the response of the underground economy to an increase in taxes the same as its response to a decrease in taxes?" We find that although the effect on the underground economy of an upward movement in the effective tax rate is numerically greater than that of a downward tax movement, this difference is not statistically significant. Copyright 2001 by The Economic Society of Australia.

Suggested Citation

  • Giles, David E A & Werkneh, Gugsa T & Johnson, Betty J, 2001. "Asymmetric Responses of the Underground Economy to Tax Changes: Evidence from New Zealand Data," The Economic Record, The Economic Society of Australia, vol. 77(237), pages 148-159, June.
  • Handle: RePEc:bla:ecorec:v:77:y:2001:i:237:p:148-59
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    References listed on IDEAS

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    1. Watson, Harry, 1985. "Tax evasion and labor markets," Journal of Public Economics, Elsevier, vol. 27(2), pages 231-246, July.
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    Citations

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    Cited by:

    1. David E. A. Giles & Betty J. Johnson, 1999. "Taxes, Risk-Aversion, and the Size of the Underground Economy: A Nonparametric Analysis With New Zealand Data," Econometrics Working Papers 9910, Department of Economics, University of Victoria.
    2. Bernasconi, Michele & Corazzini, Luca & Seri, Raffaello, 2014. "Reference dependent preferences, hedonic adaptation and tax evasion: Does the tax burden matter?," Journal of Economic Psychology, Elsevier, vol. 40(C), pages 103-118.
    3. Michele Bernasconi, Luca Corazzini, Raffaello Seri, 2012. "Tax Evasion: Does the Tax Burden Matter?," ISLA Working Papers 43, ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy.
    4. Wang, David Han-Min & Yu, Tiffany Hui-Kuang & Hu, Heng-Chang, 2012. "On the asymmetric relationship between the size of the underground economy and the change in effective tax rate in Taiwan," Economics Letters, Elsevier, vol. 117(1), pages 340-343.
    5. Anbarci, Nejat & Gomis-Porqueras, Pedro & Marcus, Pivato, 2012. "Formal and informal markets: A strategic and evolutionary perspective," MPRA Paper 42513, University Library of Munich, Germany.
    6. repec:spr:joevec:v:28:y:2018:i:2:d:10.1007_s00191-017-0544-2 is not listed on IDEAS
    7. Wang, David Han-Min & Lin, Jer-Yan & Yu, Tiffany Hui-Kuang, 2006. "A MIMIC approach to modeling the underground economy in Taiwan," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 371(2), pages 536-542.

    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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