Abstract
A complex and great challenge cutting across almost all types of economies from developed to developing economies is the phenomena of shadow economies. A number of factors are responsible for peoples’ involvement in such practices of shadow economies around the world. One of such factor is government policies especially those concerning taxation and regulation. Shadow economy practices such as tax evasion, results in the loss of tax revenues for the government and consequently affect government performance. The implications of loses in tax revenue is the incapacitation of the government’s ability to finance projects essential for economic growth and societal welfare. The current study revealed two major variables that can possibly influence the shadow economy level. The variables are: firstly, the probability of detection and secondly, the penalty rate. The present study therefore builds on the existing body of knowledge on taxes from a deterrence perspective. Since shadow economy is subject to individuals, this suggests that deterrence factors should be given priority, compared to other factors. The proposed framework, from a deterrence perspective, would benefit tax administrators in comprehending and mitigating the phenomenon of a shadow economy.
Highlights
Shadow economies signify a phenomenon of great importance in every economy, due to the huge implication it has on different parts of human economic and social life (Sabra et al, 2015)
Cebula (1997) revealed in his study of the audit probability effect on the magnitude of practice of shadow economy in USA, the study posited that when audit frequency is increased, there may be a decline in the magnitude of shadow economies
There is a prevalent perception that a widespread of some economic activities that take place under cover from the official economy and it is at an increasing rate
Summary
Shadow economies signify a phenomenon of great importance in every economy, due to the huge implication it has on different parts of human economic and social life (Sabra et al, 2015). There is lack of uniformity or high rate of flexibility in their regulatory frameworks which result into bigger shadow economies Studies such as Allingham and Sandmo (1972) are among the leading earliest studies in the domain of tax evasion, and it may be used as a relevant reference for a theoretical argument in this domain. While the correlation between tax evasion and shadow economies are not congruent, a number of circumstance or processes exist in “shadow economies” which entail the evasion of direct or indirect taxes This is in a way that any effort towards implementing the factors that decrease tax evasion will undoubtedly have effects on shadow economies (Schneider, 2017). The subsequent section covers the review of literature in order to develop the proposed model
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
