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The Relationship Between the Shadow Economy, Corruption, and Taxes: Empirical Evidence from Countries with High and Low Financial Development

Author

Listed:
  • Oanh Tran Thi Kim

    (Faculty of finance and banking, University of Finance – Marketing Ho Chi Minh City, Vietnam)

  • Quoc Huynh Van

    (Faculty of finance and banking, University of Finance – Marketing Ho Chi Minh City, Vietnam)

  • Nha Lam Tuan

    (Faculty of finance and banking, University of Finance – Marketing Ho Chi Minh City, Vietnam)

  • Chau Nguyen Thi Bao

    (Faculty of finance and banking, University of Finance – Marketing Ho Chi Minh City, Vietnam)

  • Phat Nguyen Huu

    (Faculty of finance and banking, University of Finance – Marketing Ho Chi Minh City, Vietnam)

Abstract

The paper explores the relationship between the shadow economy, corruption, and taxes in 25 high-financial developed countries (HFDCs) and 30 low-financial developed countries (LFDCs) using the PVAR method. The results of the impulse-response function show that the corruption perception index (CPI) has a positive correlation with tax revenue and the shadow economy in HFDCs, while tax revenue and the shadow economy are negatively correlated. In contrast, in LFDCs, the shadow economy has a positive correlation with tax revenue and a negative correlation with the CPI. In addition, the study also suggests that there is no relationship between tax revenue and the CPI. From the above findings, we propose several related policies for each group of countries.

Suggested Citation

  • Oanh Tran Thi Kim & Quoc Huynh Van & Nha Lam Tuan & Chau Nguyen Thi Bao & Phat Nguyen Huu, 2024. "The Relationship Between the Shadow Economy, Corruption, and Taxes: Empirical Evidence from Countries with High and Low Financial Development," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 34(4), pages 78-104.
    • Handle: RePEc:vrs:suvges:v:34:y:2024:i:4:p:78-104:n:1004
    DOI: 10.2478/sues-2024-0019
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    More about this item

    Keywords

    shadow economy; tax revenue; corruption; financial development; PVAR;
    All these keywords.

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption

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