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The Shadow Economy of Czech Republic and Tax Evasion: The Currency Demand Approach

Author

Listed:
  • Dennis Nchor

    (Department of Statistics and Operations Analysis, Faculty of Business and Economics, Mendel University in Brno, Zemědělská 1, 613 00 Brno, Czech Republic)

  • Tomáš Konderla

    (Department of Statistics and Operations Analysis, Faculty of Business and Economics, Mendel University in Brno, Zemědělská 1, 613 00 Brno, Czech Republic)

Abstract

This study investigates the shadow economy of Czech Republic and the associated losses in tax revenue. The presence of a shadow economy may not necessarily be bad for the economies in which they prevail but they could cause huge losses to government revenue and could also constitute serious violation of labour regulations. The study uses the Currency Demand Approach. It measures the size of the shadow economy in two stages: a) the econometric estimation of an aggregate money demand equation b) the calculation of the value of the shadow economy through the quantity theory of money. The key variables in the study include: the total currency held outside the banking system, the number of automatic teller machines, the deposit interest rate, GDP deflator, the average tax, velocity of money, nominal GDP and nominal money supply. The results from the study show that the shadow economy of Czech Republic on the average is about 20.9 % as at the end of 2013 and the country loses an average tax revenue of about 7.2 % of GDP yearly. The data was obtained from the World Bank country indicators and the International Financial Statistics.

Suggested Citation

  • Dennis Nchor & Tomáš Konderla, 2016. "The Shadow Economy of Czech Republic and Tax Evasion: The Currency Demand Approach," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 64(6), pages 2081-2086.
  • Handle: RePEc:mup:actaun:actaun_2016064062081
    DOI: 10.11118/actaun201664062081
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    References listed on IDEAS

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    1. Mr. Ebrima A Faal, 2003. "Currency Demand, the Underground Economy, and, Tax Evasion—The Case of Guyana," IMF Working Papers 2003/007, International Monetary Fund.
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    3. Philip Cagan, 1958. "The Demand for Currency Relative to Total Money Supply," NBER Chapters, in: The Demand for Currency Relative to Total Money Supply, pages 1-37, National Bureau of Economic Research, Inc.
    4. Friedrich Schneider & Andreas Buehn & Claudio Montenegro, 2010. "New Estimates for the Shadow Economies all over the World," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 443-461.
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    Cited by:

    1. 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.
    2. 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.

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