Effects of Formalisation of the Shadow Economy

Milojko Arsić () and Gorana Krstić ()
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Milojko Arsić: University of Belgrade
Gorana Krstić: University of Belgrade

Chapter Chapter 7 in Formalizing the Shadow Economy in Serbia, 2015, pp 101-107 from Springer

Abstract: Abstract Based on the estimate of the tax evasion gap, this chapter looks at the benefits of a reduction in the shadow economy—or, rather, the reintegration of a portion of it into the formal economy—to the Serbian budget. We show separate estimates of possible fiscal effects for the three key types of public revenue for which we have estimated the tax gap: value added tax, personal income tax, and social security contributions. The chapter also considers how formalising the shadow economy affects economic growth. Although there is a large body of empirical research on the impact of the shadow economy on economic growth, there are still no unequivocal empirical and theoretical findings. The basic question is this: Is the shadow economy a positive phenomenon? In other words, does it make a positive contribution to economic growth? The answer to these questions result in two possible avenues of approach for government policy on the shadow economy: tolerance or active suppression.

Keywords: Formal Sector; Shadow Economy; Formal Economy; Fiscal Effect; Total Economic Activity (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:spr:conchp:978-3-319-13437-6_7

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DOI: 10.1007/978-3-319-13437-6_7

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