On the asymmetric relationship between the size of the underground economy and the change in effective tax rate in Taiwan

David Han-Min Wang, Hui-Kuang Yu and Heng-Chang Hu

Economics Letters, 2012, vol. 117, issue 1, 340-343

Abstract: This paper examines the asymmetric response of the underground economy (UE) in Taiwan to an effective tax rate change. The UE size in Taiwan from 1962 to 2003 is estimated using a cash deposit ratio (CDR) approach and a currency demand approach. The impact of an increase in the effective tax rate on UE is greater than that of a decrease. In addition, the impact on the UE is stronger for direct than for indirect taxes. The difference between upward and downward movements is significant for both indirect and direct taxes in the CDR approach. However, the difference is only significant for indirect taxes in the currency demand approach.

Keywords: Underground economy; Effective tax rate; Unit root test (search for similar items in EconPapers)
JEL-codes: C22 H26 O17 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:117:y:2012:i:1:p:340-343

DOI: 10.1016/j.econlet.2012.04.041

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