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Tax Reform in Georgia and the Size of the Shadow Economy

Author

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  • Torosyan, Karine

    () (ISET, Tbilisi State University)

  • Filer, Randall K.

    () (Hunter College/CUNY)

Abstract

This paper applies three different methods widely used in the literature to track changes in shadow economic activity in Georgia following a drastic tax reform in 2005. The first method is a currency demand approach based on macro level data. The second and third methods rely on micro data from household surveys. Overall, we find evidence that the amount of income underreporting decreased in the years following the reform. The biggest change is observed for households headed by a farmer, followed by "other" types of households where the head does not report any working status. Employed and self-employed households appear very similar before the tax reform and show minimal adjustment in income reporting in the post-reform period. Results, however, suggest that much of any difference may have come from increased enforcement efforts rather than rate changes.

Suggested Citation

  • Torosyan, Karine & Filer, Randall K., 2012. "Tax Reform in Georgia and the Size of the Shadow Economy," IZA Discussion Papers 6912, Institute for the Study of Labor (IZA).
    • Handle: RePEc:iza:izadps:dp6912
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    Cited by:

    1. Tamar Khitarishvili, 2018. "Gender Pay Gaps in the Former Soviet Union: A Review of the Evidence," Economics Working Paper Archive wp_899, Levy Economics Institute.
    2. Filer, Randall K. & Hanousek, Jan & Lichard, Tomáš & Torosyan, Karine, 2016. ""Flattening" the Tax Evasion: Evidence from the Post-Communist Natural Experiment," CEPR Discussion Papers 11229, C.E.P.R. Discussion Papers.
    3. Tamar Khitarishvili, 2016. "Two tales of contraction: gender wage gap in Georgia before and after the 2008 crisis," IZA Journal of Labor & Development, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 5(1), pages 1-28, December.
    4. Dóra Győrffy, 2015. "Austerity and growth in Central and Eastern Europe: understanding the link through contrasting crisis management in Hungary and Latvia," Post-Communist Economies, Taylor & Francis Journals, vol. 27(2), pages 129-152, June.
    5. Awadh Ahmed Mohammed Gamal & Jauhari B.Dahalan, 2015. "Estimating the Size of the Underground Economy in Saudi: Evidence from Gregory-Hansen Cointegration Based Currency Demand Approach," Abstract of Economic, Finance and Management Outlook, Conscientia Beam, vol. 3, pages 1-6.
    6. Maya Grigolia & Lasha Labadze & Pavol Minarik & Alena Zemplinerova & Marek Vokoun, 2015. "Transfer of Know-how for SMEs in Georgia, Moldova and Ukraine. White Paper: Georgia," CASE Network Reports 0123, CASE-Center for Social and Economic Research.
    7. Tamar Khitarishvili, 2013. "Evaluating the Gender Wage Gap in Georgia, 2004 - 2011," Economics Working Paper Archive wp_768, Levy Economics Institute.

    More about this item

    Keywords

    consumer behavior; tax reform; hidden/shadow economy; transition economy;

    JEL classification:

    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • J39 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Other

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