Testing the asymmetric effects of tax burden and production on the shadow economy and estimating the size of the underground economy

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Fooladvand Amin; Hadinejad Manijeh; Mohammadi Teymour; Amin Rashti Narsis

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Journal Paper

Paper Information

Journal: JOURNAL OF ECONOMIC MODELING Year:2024 | Volume:9 | Issue:3 (پیاپی 35) Page(s): 107-137

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Title

Testing the asymmetric effects of tax burden and production on the shadow economy and estimating the size of the underground economy

Author(s)

Fooladvand Amin | Hadinejad Manijeh | Mohammadi Teymour | Amin Rashti Narsis | Issue Writer Certificate

Keywords

Tax burden

production

underground economy

NARDL nonlinear model

Abstract

The present article explains the asymmetric effect of tax burden and production on Iran's shadow economy using the NARDL nonlinear model for the years 2005-2021. In this research, the Tanzi approach of the demand function (money) has been used to estimate the size of the underground economy. The index of the underground economy in Iran has ups and downs during the period under review, and this trend has been increasing in the years 2014 to 2015. In recent years, paying more attention to the issue of tax revenues, tax transparency and the reduction of oil revenues of the government, the size of the underground economy has gone through its downward trend. Also, according to the results of the model, the asymmetric positive and negative effects of the tax burden lead to a decrease in the ratio of money to liquidity, which results in an increase in the volume of the underground economy. High tax rates and tax burden are one of the most important reasons for the increase in the size of the underground economy. A higher tax rate and tax burden will lead to increased activity in the underground economy sector, which in turn will increase the size of the underground economy. When the tax burden increases due to the increase in the tax rate, people move towards the underground economy faster, but the reduction of the tax burden will probably have a small impact on the underground economy. To solve the problem of the underground economy, one of the most important solutions that was examined in this research is the growth and development of the production sector. The government should have continuous planning for the improvement and growth of production and the continued growth of production for many years will result in the reduction of the underground economy.

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