Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/113797
Authors: 
Buehn, Andreas
Dell' Anno, Roberto
Schneider, Friedrich
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5466
Abstract: 
This paper presents an empirical analysis of the relationship between fiscal illusion and the shadow economy for 104 countries over the period 1989–2009. We argue that both unobservable phenomena are closely linked to each other, as the creation of a fiscal illusion may be helpful if governments want to control shadow economic activities. Using a MIMIC model with two latent variables we confirm previous findings on the driving forces of the shadow economy and identify the main determinants and indicators of fiscal illusion. Most importantly, we find that fiscal illusion negatively affects the shadow economy and the shadow economy positively affects fiscal illusion. Concealing the real tax burden we find that an increase of taxation increases both shadow economic activities and fiscal illusion.
Subjects: 
fiscal illusion
shadow economy
MIMIC model
latent variables
tax burden
tax complexity
JEL: 
O17
K42
E62
Document Type: 
Working Paper

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