An Evaluation of the Impact of Corruption, Tax Burden, and Income on the Size of the Shadow Economy

The objective of this research is to examine the effect of corruption, tax burden, income, and tax administration efficiency on the size of the shadow economy. In this study, we have investigated the size of the shadow economy of 50countries. We provide empirical evidence and explanation for the vicious circle of tax evasion and political corruption in which many developing countries, and sometimes even developed countries, often fall into. Also, an important relation between the level of income and tax evasion is identified. In the end, recommendations are made for policy makers. We find that standard prevention policies, that sometimes have a short-term effect, do not offer a real long-term solution for tax evasion and corruption; instead, policies and measures that impose a strong moral cost on corrupt politicians and on tax evaders can lead to a permanent reduction of both.

Full Text: PDF     DOI: 10.15640/ijat.v3n2a2