The Relationship Between the Shadow Economy, Corruption, and Taxes: Empirical Evidence from Countries with High and Low Financial Development

Oanh Tran Thi Kim (), Quoc Huynh Van (), Nha Lam Tuan (), Chau Nguyen Thi Bao () and Phat Nguyen Huu ()
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Oanh Tran Thi Kim: Faculty of finance and banking, University of Finance – Marketing Ho Chi Minh City, Vietnam
Quoc Huynh Van: Faculty of finance and banking, University of Finance – Marketing Ho Chi Minh City, Vietnam
Nha Lam Tuan: Faculty of finance and banking, University of Finance – Marketing Ho Chi Minh City, Vietnam
Chau Nguyen Thi Bao: Faculty of finance and banking, University of Finance – Marketing Ho Chi Minh City, Vietnam
Phat Nguyen Huu: Faculty of finance and banking, University of Finance – Marketing Ho Chi Minh City, Vietnam

Studia Universitatis „Vasile Goldis” Arad – Economics Series, 2024, vol. 34, issue 4, 78-104

Abstract: The paper explores the relationship between the shadow economy, corruption, and taxes in 25 high-financial developed countries (HFDCs) and 30 low-financial developed countries (LFDCs) using the PVAR method. The results of the impulse-response function show that the corruption perception index (CPI) has a positive correlation with tax revenue and the shadow economy in HFDCs, while tax revenue and the shadow economy are negatively correlated. In contrast, in LFDCs, the shadow economy has a positive correlation with tax revenue and a negative correlation with the CPI. In addition, the study also suggests that there is no relationship between tax revenue and the CPI. From the above findings, we propose several related policies for each group of countries.

Keywords: shadow economy; tax revenue; corruption; financial development; PVAR (search for similar items in EconPapers)
JEL-codes: D73 E26 H2 H26 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:suvges:v:34:y:2024:i:4:p:78-104:n:1004

DOI: 10.2478/sues-2024-0019

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