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The development of the shadow economy under changing tax systems and structures: Some theoretical and empirical results for Austria

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  • Schneider, Friedrich
  • Neck, Reinhard

Abstract

In this paper we investigate how different tax systems and structures affect the extent of the shadow economy. First, we formulate a simple theoretical microeconomic raodel of household behavior, where the household can participate in the official and in the shadow economy. Using comparative statics, we show that a measure of "coraplexity" of the tax system affects participation in the shadow economy negatively, i.e., a more "complex" tax system implies, ceteris paribus, a smaller labor supply in the shadow economy. Next, we analyze the determinants of the shadow economy empirically for Austria. Various methods to estimate the size of the shadow economy are discussed. Empirical results for Austria obtained by using the currency demand approach are presented. Finally, we examine three case studies to show quantitatively how the size of the shadow economy can be influenced by changes in the tax structures.

Suggested Citation

  • Schneider, Friedrich & Neck, Reinhard, 1992. "The development of the shadow economy under changing tax systems and structures: Some theoretical and empirical results for Austria," Discussion Papers, Series II 195, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    • Handle: RePEc:zbw:kondp2:195
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    Cited by:

    1. Gilbert Koenig, 2004. "La demande de billets de valeurs faciales élevées et les activités financières souterraines," Recherches économiques de Louvain, De Boeck Université, vol. 70(4), pages 425-442.
    2. Lucian Liviu ALBU & Ion GHIZDEANU & Mărioara IORDAN, 2008. "Informal Economic Estimation Models at Macroeconomic Level. Some Theoretical and Methodologial Considerations," Timisoara Journal of Economics, West University of Timisoara, Romania, Faculty of Economics and Business Administration, vol. 1(2), pages 177-190.
    3. Gilbert Koenig, 2002. "La demande de grosses coupures et l’économie souterraine," Working Papers of BETA 2002-19, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    4. Reinhard Neck & Jens Wächter & Friedrich Schneider, 2012. "Tax avoidance versus tax evasion: on some determinants of the shadow economy," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(1), pages 104-117, February.
    5. Lackó, Mária, 1995. "Rejtett gazdaság nemzetközi összehasonlításban [Hidden economy by international comparison - A method of estimation based on the bouseholds' energy consumption]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(5), pages 486-510.
    6. Mateescu, Dan, 2016. "The Linear Regression Of Weighted Segments," Working Papers of Institute for Economic Forecasting 160720, Institute for Economic Forecasting.
    7. Albu, Lucian-Liviu & Nicolae, Mariana, 2003. "Use of households survey data to estimate the size of the informal economy in Romania," MPRA Paper 14286, University Library of Munich, Germany.

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    More about this item

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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