The impact of the shadow economy on the direct-indirect tax mix: Can central banks’ independence mitigate the effect?

Ioannis Dokas, Minas Panagiotidis, Stephanos Papadamou and Eleftherios Spyromitros

Journal of Policy Modeling, 2024, vol. 46, issue 3, 475-493

Abstract: The recent financial crisis caused by corruption and opacity has led us to examine how the informal economy and other factors affect tax revenues using a three-pillar theoretical analysis. Empirical research has not thoroughly explored the shadow economy's impact on direct and indirect taxes, tax revenues, and the central bank's independence from the shadow economy and tax collection. This paper used 2010–2018 data from 129 countries. The shadow economy and tax revenues had a substantial negative relationship. The shadow economy also changed the fiscal authorities' policy mix by reducing direct taxes and increasing indirect taxes. Finally, the central bank's independence mitigated the shadow economy's negative effects on tax revenues.

Keywords: Tax revenues; Shadow economy; Central bank independence; Democracy; Panel cointegration (search for similar items in EconPapers)
JEL-codes: E58 E60 F40 H20 O17 O50 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jpolmo:v:46:y:2024:i:3:p:475-493

DOI: 10.1016/j.jpolmod.2024.03.001

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