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The Underground Economy and Tax Evasion in Pakistan: Annual Estimates (1960-1998) and the Impact of Dollarisation of the Economy

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  • Salman Aslam

    (Arshad Zaman Associates (Pvt.) Ltd., Karachi.)

Abstract

The underground economy (UE) and tax evasion have been a focus of research in Pakistan for many years now. The growing interest in these areas is because of persistent budget deficits resulting from inadequate tax revenues. It is not the presence but the size of the underground economy and the extent of tax evasion that is a major cause of concern. The growth rate of the underground economy is crucial to policy making. Lack of information in this regard is often held responsible for distortions in major macroeconomic indicators. In effect, the socio-economic policies based on these indicators are made ineffectual. Thus up-to-date estimates of the size and growth of the underground economy are very important. Social and economic policies directly affect the size and growth of the underground economy. Major policy changes like structural reforms in the financial and banking sectors make a significant impact on both .economies. In this respect, it is crucial to gauge the impact of structural changes like dollarisation of the economy on underground activities. The term underground economy encompasses a vast variety of activities that are not deemed legal by law and one cannot be sure of the exact meaning of the phrase. There are several synonyms of the term underground; for example Secondary, Hidden, Irregular, Parallel, Unofficial, Black etc. However, there are four different categories under which the underground economy can be classified.

Suggested Citation

  • Salman Aslam, 1998. "The Underground Economy and Tax Evasion in Pakistan: Annual Estimates (1960-1998) and the Impact of Dollarisation of the Economy," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 37(4), pages 621-631.
    • Handle: RePEc:pid:journl:v:37:y:1998:i:4:p:621-631
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    References listed on IDEAS

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    1. Edgar L. Feige, 1979. "How Big Is the Irregular Economy?," Challenge, Taylor & Francis Journals, vol. 22(5), pages 5-13, November.
    2. David J. Pyle, 1989. "Tax Evasion and the Black Economy," Palgrave Macmillan Books, Palgrave Macmillan, number 978-1-349-08488-3, December.
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    Cited by:

    1. Muhammad Farooq Arby & Muhammad Jahanzeb Malik & Muhammad Nadim Hanif, 2010. "The Size of Informal Economy in Pakistan," SBP Working Paper Series 33, State Bank of Pakistan, Research Department.
    2. Mughal, Khurrum & Schneider, Friedrich, 2018. "Shadow Economy in Pakistan: Its Size and Interaction with Official Economy," MPRA Paper 87087, University Library of Munich, Germany.
    3. Saeed Karimi Petanlar & Ahmad Jafari Samimi & Alireza Aminkhaki, 2011. "An Estimation of Tax Evasion in Iran," Journal of Economics and Behavioral Studies, AMH International, vol. 3(1), pages 8-12.
    4. M. Ali Kemal, 2007. "A Fresh Assessment of the Underground Economy and Tax Evasion in Pakistan: Causes, Consequences, and Linkages with the Formal Economy," PIDE-Working Papers 2007:13, Pakistan Institute of Development Economics.
    5. Ahmed Gulzar & Novaira Junaid & Adnan Haider, 2010. "What is Hidden in the Hidden Economy of Pakistan? Size, Causes, Issues, and Implications," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 49(4), pages 665-704.
    6. Khurrum S. Mughal & Friedrich G. Schneider, 2020. "How Informal Sector Affects the Formal Economy in Pakistan? A Lesson for Developing Countries," South Asian Journal of Macroeconomics and Public Finance, , vol. 9(1), pages 7-21, June.
    7. Omar Ashraf & M. Ali Kemal, 2019. "Exploring the Determinants of Underground Economy of Pakistan," PIDE-Working Papers 2019:163, Pakistan Institute of Development Economics.
    8. Khurrum S. Mughal & Friedrich G. Schneider & Zafar Hayat, 2020. "Intensity of Regulations as a Cause of the Informal Sector," Journal of South Asian Development, , vol. 15(2), pages 135-154, August.
    9. Sulehri, Fiaz Ahmad & Ahmed, Usman & Alim, Wajid, 2021. "Black Economy, Financial Inclusion, Financial Liberalization Nexus: A Panel Analysis of Developing Countries," MPRA Paper 111129, University Library of Munich, Germany.
    10. Asif Razzaq & Rabia Nazir & Fareeha Adil, 2020. "Dynamic Relationship among Tax Evasion, Control over Corruption and Political Accountability: A Case Study of Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(5), pages 256-261.
    11. M. Ali Kemal, 2003. "Underground Economy and Tax Evasion in Pakistan A Critical Evaluation," PIDE-Working Papers 2003:184, Pakistan Institute of Development Economics.
    12. Rafat MAHMOOD & Eatzaz AHMAD, 2015. "Measurement Of Import Smuggling In Pakistan," Pakistan Journal of Applied Economics, Applied Economics Research Centre, vol. 25(2), pages 135-159.
    13. Fiaz Ahmad Sulehri & Usman Ahmed & Wajid Alim, 2021. "Black Economy, Financial Inclusion, Financial Liberalization Nexus: A Panel Analysis Of Developing Countries," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 10(3), pages 65-77.
    14. Michael Takudzwa Pasara & Rufaro Garidzirai, 2020. "The Boomerang Effects: An Analysis of the Pre and Post Dollarisation Era in Zimbabwe," Economies, MDPI, vol. 8(2), pages 1-20, April.
    15. Misbah Kiani & Adeel Ahmed & Khalid Zaman, 2015. "Combining qualitative and quantitative approaches for measuring underground economy of Pakistan," Quality & Quantity: International Journal of Methodology, Springer, vol. 49(1), pages 295-317, January.

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