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Tax system and informal economy: a cross-country analysis

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  • K. Nagac

Abstract

This article analyses determinants of informal economy. By using qualitative aspects of tax systems, first, we create a 'Smithian' tax system index based on Adam Smith's four maxims. Then, using this index and other control variables, we study determinants of informal economy. We use unique panel data set that is constructed by using various sources. After taking into account the endogeneity of tax burden and GDP per capita, our results show that 'Smithian' tax system index does not significantly affect informal economy. Our results suggest that rule of law, complexity of a tax system and tax burden affect informal economy negatively, while labour market regulations affect positively.

Suggested Citation

  • K. Nagac, 2015. "Tax system and informal economy: a cross-country analysis," Applied Economics, Taylor & Francis Journals, vol. 47(17), pages 1775-1787, April.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:17:p:1775-1787
    DOI: 10.1080/00036846.2014.1002893
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    Cited by:

    1. Ligita Gasparėnienė & Rita Remeikienė & Colin C. Williams, 2022. "Unemployment and the Informal Economy," SpringerBriefs in Economics, Springer, number 978-3-030-96687-4, October.
    2. Ligita Gasparėnienė & Rita Remeikienė & Colin C. Williams, 2022. "Theorizing the Informal Economy," SpringerBriefs in Economics, in: Unemployment and the Informal Economy, chapter 0, pages 7-60, Springer.
    3. Hailin Chen & Friedrich Schneider & Qunli Sun, 2020. "Measuring the size of the shadow economy in 30 provinces of China over 1995–2016: The MIMIC approach," Pacific Economic Review, Wiley Blackwell, vol. 25(3), pages 427-453, August.
    4. 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.
    5. Boza, S. & Mora, M. & Osorio, F. & Munoz, J., 2018. "Family farmer attitudes toward incorporating into the formal economy," 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia 276960, International Association of Agricultural Economists.

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