The Learning Path of the Hidden Economy:Tax and Growth Effects in New Zealand

David Giles and Patrick J. Caragata ()
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Patrick J. Caragata: McCallum Petterson Diagnostics, Wellington,N.Z.

No 9805, Econometrics Working Papers from Department of Economics, University of Victoria

Abstract: This paper considers the "learning curve" relationship between the aggregate tax rate and the relative size of the hidden economy in New Zealand. Some simple non-linear models are estimated so that the effects of changes in the effective tax rate on the underground economy can be simulated. We find that over half of the hidden activity in New Zealand is a learned response to changing opportunities and constraints in fiscal policy, but this amount varies over the business cycle. A zero tax rate permits us to discover the "natural rate" of underground and criminal activity. Implications are drawn for taxation policy in that country.

Keywords: Hidden Economy; Underground Economy; Tax Evasion; Tax Gap (search for similar items in EconPapers)
JEL-codes: C5 H1 H2 (search for similar items in EconPapers)
Pages: 24 pages
Date: 1998-05-22
New Economics Papers: this item is included in nep-eec, nep-pbe and nep-pub
Note: ISSN 1485-6441. This is a revised version of N.Z. Inland Revenue Department Working Paper No. 21, December 1996.
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:vic:vicewp:9805

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