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Shadow Economy and Tax Evasion: A Panel VAR approach. The Case of E.U.27

Author

Listed:
  • Mihai Mutascu

    (West University of Timisoara, Faculty of Economics and Business Administration,Timisoara)

  • Anne-Marie Fleischer

    (West University of Timisoara, Faculty of Economics and Business Administration,Timisoara)

Abstract

The paper investigates the biunivoque relationship between shadow economy (s) and tax evasion (t), considering a panel data-series, from 1997 to 2005, in the case of European Union 27 (E.U.27) countries. The empirical results show that: (1) A positive 1% impulse in s determines a strong descendent reaction of t on short term (first 2-3 years), becoming “aggressive descendent” on the medium and long term, and (2) A positive 1% impulse in t determines a very low ascendant reaction of s’s level on medium and long term. The main finding reveals that the relationship between shadow economy and tax evasion has different amplitude and signs.

Suggested Citation

  • Mihai Mutascu & Anne-Marie Fleischer, 2011. "Shadow Economy and Tax Evasion: A Panel VAR approach. The Case of E.U.27," Economic Research Guardian, Weissberg Publishing, vol. 1(1), pages 24-33, September.
    • Handle: RePEc:wei:journl:v:1:y:2011:i:1:p:24-33
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    More about this item

    Keywords

    Shadow economy; Tax evasion; Effects; Panel VAR;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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