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Shadow economy and its relations with tax system and state budget in Poland 1995 - 2007

Author

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  • Stanisław Cichocki

    (Faculty of Economic Sciences, University of Warsaw)

Abstract

In this paper, results of the research on measurement of shadow economy in Poland in the period 1995 - 2007 are presented. This research is motivated by controversial existing estimates. First, some definitions of shadow economy are reviewed. Then, on the basis of monetary methods, an econometric model for currency demand is built. Using estimation results, the size of shadow economy is assessed. According to these estimates shadow economy declined in the period 1995 – 2007 starting from 40% of GDP in 1995 and reaching about 10% of GDP in 2007. The paper also analyses relations between shadow economy, state budget and tax system. Measures for these relations are discussed and a Vector Autoregressive model is estimated. Impulse Reaction Functions are drawn, showing that an increase in indirect tax burden enlarges shadow economy. A contrary effect arises due to an increase in a) direct tax burden, b) budget balance.

Suggested Citation

  • Stanisław Cichocki, 2008. "Shadow economy and its relations with tax system and state budget in Poland 1995 - 2007," Working Papers 2008-05, Faculty of Economic Sciences, University of Warsaw.
    • Handle: RePEc:war:wpaper:2008-05
    as

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    File URL: http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP5.pdf
    File Function: First version, 2008
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    References listed on IDEAS

    as
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    3. Edgar L. Feige, 1979. "How Big Is the Irregular Economy?," Challenge, Taylor & Francis Journals, vol. 22(5), pages 5-13, November.
    4. Feige, Edgar L., 1990. "Defining and estimating underground and informal economies: The new institutional economics approach," World Development, Elsevier, vol. 18(7), pages 989-1002, July.
    5. Friedrich Schneider, 2005. "Shadow Economies of 145 Countries all over the World: What Do We Really Know?," CREMA Working Paper Series 2005-13, Center for Research in Economics, Management and the Arts (CREMA).
    6. 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.
    7. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
    8. Shima, Isilda, 2004. "The shadow economy in Norway: Demand for currency approach," Memorandum 10/2004, Oslo University, Department of Economics.
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    Cited by:

    1. Vjekoslav Klaric, 2011. "Estimating the size of non-observed economy in Croatia using the MIMIC approach," Financial Theory and Practice, Institute of Public Finance, vol. 35(1), pages 59-90.

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    More about this item

    Keywords

    shadow economy; tax system; state budget; currency method; VAR;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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