Tax Reform in Georgia and the Size of the Shadow Economy

43 Pages Posted: 20 Oct 2012

See all articles by Randall K. Filer

Randall K. Filer

City University of New York, CUNY Hunter College - Department of Economics; Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute); University of Michigan at Ann Arbor - The William Davidson Institute; CESifo (Center for Economic Studies and Ifo Institute)

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Abstract

This paper applies three different methods widely used in the literature to track changes in shadow economic activity in Georgia following a drastic tax reform in 2005. The first method is a currency demand approach based on macro level data. The second and third methods rely on micro data from household surveys. Overall, we find evidence that the amount of income underreporting decreased in the years following the reform. The biggest change is observed for households headed by a farmer, followed by "other" types of households where the head does not report any working status. Employed and self-employed households appear very similar before the tax reform and show minimal adjustment in income reporting in the post-reform period. Results, however, suggest that much of any difference may have come from increased enforcement efforts rather than rate changes.

Keywords: consumer behavior, tax reform, hidden/shadow economy, transition economy

JEL Classification: E01, H26, J39

Suggested Citation

Filer, Randall K., Tax Reform in Georgia and the Size of the Shadow Economy. IZA Discussion Paper No. 6912, Available at SSRN: https://ssrn.com/abstract=2164641

Randall K. Filer

City University of New York, CUNY Hunter College - Department of Economics ( email )

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Charles University in Prague - CERGE-EI (Center for Economic Research and Graduate Education - Economics Institute) ( email )

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CESifo (Center for Economic Studies and Ifo Institute)

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