TAX EVASION AND CURRENCY RATIO: PANEL EVIDENCE FROM DEVELOPING COUNTRIES

Abel Embaye, Mussie T Tessema and Wei-Choun Yu
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Abel Embaye: Department of Economics, Sam M. Walton College of Business, Business Building, Room 402, University of Arkansas, Fayetteville, AR 72701-1201, USA.
Mussie T Tessema: Department of Business Administration, Winona State University, Winona, MN, 55987, USA.
Wei-Choun Yu: UCLA Anderson School of Management

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Abstract: We examine the link between tax evasion and the currency ratio for non-OECD countries for the period 1996-2013. Unlike previous studies, we use non-parametric methods of estimation because economic theory doesn't prescribe a specific functional form for the relationship between currency ratio and its determinants. We find that higher tax rate and lower enforcement strength leads to a higher tax evasion and higher currency ratio. Furthermore, we find that the level of development, the rate of interest, the rate of inflation, and the degree of urbanization across countries tend to explain currency ratio. The study highlights a new link through which fiscal policy can have an effect on the composition of monetary aggregates and hence monetary policy.

Date: 2016-09-15
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Published in Journal of Global Economics, Management and Business Research, 2016, 7 (3), pp.195-203

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05364114

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