Asymmetric Responses of the Underground Economy to Tax Changes: Evidence From New Zealand Data

David Giles, Gugsa T. Werkneh and Betty J. Johnson

The Economic Record, 2001, vol. 77, issue 237, 148-159

Abstract: This paper considers the relationship between taxes and the size of the New Zealand underground economy. Previous studies indicate that a positive relationship exists in this and certain other countries. This paper addresses the question: ‘Is the response of the underground economy to an increase in taxes the same as its response to a decrease in taxes?’ We find that although the effect on the underground economy of an upward movement in the effective tax rate is numerically greater than that of a downward tax movement, this difference is not statistically significant.

Date: 2001
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