Tax Reform in Georgia and the Size of the Shadow Economy

32 Pages Posted: 15 Dec 2013

See all articles by Karine Torosyan

Karine Torosyan

Tbilisi State University (TSU) - International School of Economics (ISET)

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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Date Written: January 2014

Abstract

This study 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 macrolevel data. The second and third methods rely on micro level 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: Hidden/shadow economy, tax reform, consumer behaviour, transition economy

Suggested Citation

Torosyan, Karine and Filer, Randall K., Tax Reform in Georgia and the Size of the Shadow Economy (January 2014). Economics of Transition, Vol. 22, Issue 1, pp. 179-210, 2014, Available at SSRN: https://ssrn.com/abstract=2367580 or http://dx.doi.org/10.1111/ecot.12034

Karine Torosyan (Contact Author)

Tbilisi State University (TSU) - International School of Economics (ISET) ( email )

16 Zandukeli Street
Tbilisi, 0108
Georgia

Randall K. Filer

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

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Hunter West 1502
New York, NY 10021
United States
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HOME PAGE: http://econ.hunter.cuny.edu/faculty/filer/

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

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7 Politickych veznu
Prague 1, 111 21
Czech Republic
42 02 240 05 213 (Phone)
42 02 242 27 143 (Fax)

HOME PAGE: http://www.cerge-ei.cz

University of Michigan at Ann Arbor - The William Davidson Institute

724 E. University Ave.
Wyly Hall
Ann Arbor, MI 48109-1234
United States

CESifo (Center for Economic Studies and Ifo Institute)

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Munich, DE-81679
Germany

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