Shadow economy and corruption are the two harmful activities that do not work in the favour of tax revenue performance. As a result it renders an effective government incapacitated and unable to carry out its social responsibilities. This study considers the effect of the informal economy and graft on tax revenue performance in Nigeria using secondary data that cover a period from 1996 to 2018. This period has been covered by the corruption perception index captured by the Transparency International for Nigeria. Despite the theoretical approaches available in measuring the size of the shadow economy, the ordinary least squares technique is specifically used to perform the multi-regression analysis to arrive at the empirical results which indicate that both the shadow economy and corruption have negative influences on tax revenue performance in Nigeria, although the negative impact of corruption on tax revenue is more robust and significant. Thus, the study suggests among others that the government should step up action against corruption and also address the root causes of shadow economy in order to make the participants of the informal sector willing to formalize their businesses and voluntarily comply with tax payment obligations.
If the inline PDF is not rendering correctly, you can download the PDF file here.
1. Abdih Y. & Medina L. (2016) The informal economy in the Caucasus and Central Asia: Size and determinants In Arnis Sauka Friedrich Schneider and Colin C. Williams (Editors) Entrepreneurship and the Shadow Economy Edward Elgar Publishing Inc.
2. Anwar S. Akbar R. Akbar M.W. & Azhar A. (2017) Measuring the size of underground Economy in Pakistan: A microeconomic approach Journal of Applied Environmental and Biological Sciences 7(8) pp. 84-93.
3. Aruoba S.B. (2010) Informal Sector Government Policy and Institutions 2010 Meeting Papers 324 Society for Economic Dynamics.
4. Awasthi R. & Engelschalk M. (2018) Taxation and the shadow economy. How the tax system can stimulate and enforce the formalization of business activities Policy Research Working Paper 8391 World Bank Group Governance Global Practice.
5. Barbara A. & Claudio C. (2015) Tax reforms and the underground economy: a simulation-based analysis Dipartimento di Economia Diritto e Istituzioni Universita degli Studi di Roma Tor Vergata Via Columbia 2 00133 Rome Italy.
6. Bird R. Martinez-Vasquez J. & Torgler B. (2008) Tax effort in developing countries and high income countries: The impact of corruption Voice Accountability Economic Analysis and Policy.
7. Bologna J. (2015) The effect of informal employment and corruption on income levels in Brazil Journal of Comparative Economics Elsevier 44(3) pp. 657-695.
8. Borlea S.N. Achim M.V. & Miron M.G.A. (2017) Corruption shadow economy and economic growth: an empirical survey across the European Union countries Studia Universitatis “Vasile Goldis” Arad Economic Series 27(2) pp. 19-32.
9. Chen H. & Schneider F. (2018) Size and causes of shadow economy in China over 1978-2016: based on the currency demand method Retrieved on 06.04.2019 from: www.econ.jku.at/t3/.../schneider/.../Chen_Schneider_2018_Sizeandcausesofshadow.p
10. Feige E.L. & Urban I. (2008) Measuring Underground (Unobserved Non-Observed Unrecorded) Economies in Transition Countries: Can We Trust GDP? Michigan: The William Davidson Institute.
11. Gaspareniene L. Remeikiene R. & Heikkila M. (2016) Evaluation of the impact of shadow economy determinants: Ukrainian case Intellectual Economics 10(2016) pp. 108-113.
12. Guillermo R.B.C. & Deyvi A.A. (2018) The informal economy and its impact on tax revenues and economic growth Analysis of OECD members and Latin America Countries (1995-2016). Retrieved on 20.03.2019 from: https://www.researchgate.net/publication/328343445.
13. Hassan M. (2017) The impact of the shadow economy on aid and economic development nexus in Egypt Munich Personal RePEc Archive Available online at: https://mpra.ub.uni-muenchen.de/80990/.
14. Hunady J. & Orviska M. (2015) The effect of corruption on tax revenue in OECD and Latin America countries Retrieved on 22.03.2019 from: https://www.researchgate.net/publication/279188559
15. International Monetary Fund (2017) Nigeria’s informal economy accounts for 65% of GDP – IMF Retrieved on 20.03.2019 from: https://www.businessamlive.com/nigerias-informal-economy-accounts-65-gdpimf/
16. Ivanyna M. Moumouras A. & Rangazas P. C. (2016) The culture of corruption tax evasion and economic growth (January 2016) Economic Inquiry 54(1) pp. 520-542.
17. Mawejje J. & Munyambonera E.F. (2016) Tax revenue effects of sectoral growth and public expenditure in Uganda Economic Policy Research Centre Research Series No. 125.
18. Muchiri K.B. (2014) An analysis of the effect of the growth of the informal sector on tax revenue performance in Kenya Msc. Thesis submitted to the school of Economics University of Nairobi.
19. Nchor D. & Konderla T. (2016) The Shadow Economy of Czech Republic and Tax Evasion: The Currency Demand Approach Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis 64(6) 2081–2086.
20. Ogunc F. & Yilmaz G. (2000) Estimating the Underground Economy in Turkey The Central Bank of the Republic of Turkey Research Department Discussion paper September 2000.
21. Opret L.A. Turcaş F.M. Dumiter F.C. & Brezeanu P. (2017) Tax evasion between fraud and Legality Studia Universitatis “Vasile Goldis” Arad Economic Series 27(4) pp. 1-11.
22. Peter L. (2017) Investigating the impact of the shadow economy on tax revenue performance in Zimbabwe (1980-2015) Bsc. Project submitted to Department of Economics Faculty of Commerce Midlands State University Gweru Zimbabwe.
23. Petrescu I.M. (2016) The Effects of Economic Sanctions on the Informal Economy Management Dynamics in the Knowledge Economy 4(4) pp. 623-648.
24. Putnins T.J. & Sauka A. (2014) Measuring the Shadow Economy Using Company Managers Journal of Comparative Economics Forthcoming Available at SSRN https://ssrn.com/abstract=2423253.
25. Schneider F. (2010) The influence of public institutions on the shadow economy: An empirical investigation for OECD Countries European Journal of Law and Economics 6(3) pp. 441-468.
26. Schneider F. & Enste D. (2000) Shadow economies: size causes and consequences The Journal of Economic Literature 38(1) pp. 77-114.
27. Shahab M.R. Pajooyan J. & Ghaffari F (2015) The effect of corruption on shadow economy: an empirical analysis based on panel data International Journal of Business and Development Studies 7(1) pp. 85-100.
28. Tanzi V. (1980) The underground economy in the United States: estimates and implications Banca Nazionale del Lavoro 135 pp. 427–453.
29. Tanzi V. (1983) The underground economy in the United States: annual estimates 1930–1980 IMF Staff Papers 30 pp. 283–305.
30. Tanzi V. (1999) Uses and Abuses of Estimates of the Underground Economy Economic Journal 109(3) pp. 338–347.
31. Tatariyanto F. (2014) Taxing the underground economy: The case of Indonesia Journal of Economics and Sustainable Development 5(27) pp. 236-250.
32. Tedika O. & Mutascu M. (2013) Shadow economy and tax revenue in Africa. Munich Personal RePEc Archive Available on line at: http://mpra.ub.unimuenchen.de/508121.
33. Vuletin G.J. (2008) Measuring the informal economy in Latin America and the Caribbean International Monetary Fund Working Paper No. 08/102.