Measuring the size of underground economy in Iran with emphasis on the incentives for evasion of insurance premium payment (1961 – 2001)

This paper attempts to estimate the size of underground economy in Iran and to identify the elements having taken a role in the creation of the same for the period 1961-2001 by using modified currency ratio method as a monetary approach to the estimation of the size of underground economy. Regression model has been stipulated with the consideration of special economic circumstances prevailing in Iran. Currency ratio (circulating currency to total private sector bank deposits ratio) has been considered as a function of economic development (per capita income), inflation rate, the degree of urbanization (a measure of the development of financial institutions) and private consumption expenditures. Government expenditures to GDP ratio (a measure of government economic interventions), import tax burden, direct tax burden, social security tax burden and black market foreign exchange rate have been also considered as the indicators and variables reflecting underground economy. The model has been estimated by using an auto-regressive distributed lag (ARDL) method and the results are indicative of a high volume of such activities within the frameworks of the economy of Iran. The mean size of underground economy has been 27.76 percent of GDP during the period of study. Out of all the factors creating the underground economy, the size of government fraction of economy has had the greatest effect and social insurance burden has had the smallest one. Although the increase in insurance burden is in itself a factor in the creation of underground economy, in its turn has a striking negative impact on the performance and stability of social insurance funds.underground economy, ARDL, modified currency ratio, social security contribution evasion, Iran

Shadow Economy and Poverty

This study attempts to investigate the relationship between shadow economy and poverty by explaining the mechanism through which shadow economy affects poverty via its impact on government size and economic growth, and using the human poverty index (HPI) for developing and developed countries. In order to achieve this objective, the three-way interaction model is utilized using data of 139 developing and 23 developed countries separately during 1999-2007. For developing countries the dynamic panel system GMM and for developed countries, the fixed and random effects method of estimation is used. The results suggest that increasing the shadow economy leads to increase poverty in developing countries while it decreases poverty in developed countries.Shadow economy, Poverty, Panel data analysis

The shadow economy Kuznets’s curve panel data analysis

The review of recent literature shows the relationship between shadow economy and economic growth is ambiguous. This paper attempts to answer whether the relationship between shadow economy and economic growth depends on the level of development or not? In this way, the Shadow Economy Kuznets’s Curve (SEKC) is estimated in two quadratic -Inverted U- and cubic -N shape- functional form by using shadow economies data of 21 selected OECD countries for time period of 1995-2006. The panel data analyses results show that cubic functional form justifies the relationship between shadow economy and economic growth better, this relationship depends on the level of development and the shadow economy has a positive effect on the official economy.Shadow economy, economic growth, Kuznets’s curve, panel data analysis, OECD

Business cycles and policy making in social insurance systems the case of Iran (1962-2004)

Social security is not apart from other aspects of growth and development. It is a phenomenon completely coherent to economic growth, social justice, human dignity and national prosperity. Generally national social security systems in most countries consist of insurance, protection and relief policies. Socio-historical studies reveals that by promoting economic growth and development of middle class, in addition to strengthening civil institutions, the protective function of system would be reduced and adversely the insurance function will be increased. In principle there is a direct linkage between social security policies and economic growth via improving production capability. Some believe that economic growth will not be achieved properly without extending social security. Such interdependency requires a stable coordination between social security policies and macroeconomic policies so that development of social welfare results in more productive activities and eventually economic efficiency and productivity. The success and sustainability of a social security fund in long term is highly rely on suitable policy and decision making, and in this regard the macro-economic is one of the most affecting environmental factors or variables on the performance and decision making processes in social security fund. Thus, to adopt proper policies and to be sensitive to external environment of the organization, it is so important to understand the economic boom and slump or in other word the economic cycles. This paper attempts to measure business cycles of Iran during 1962-2004, by using the Hodrick- Prescott filter. Moreover the relationship between these cycles and some variables of Social Security Organization of Iran – the largest and oldest social insurance organization for workers in private sector- will be analyzed. Results indicate that stagflation situation in Iran’s economy and adjusting minimum wages according to the inflation have caused mismatching between macroeconomic policies and social insurance policies. This situation has led to increase of social insurance burden - the ratio of premium revenues to production of industry and service sectors- and accordingly increase of premium evasion

The Causal Relationship between Corruption and Poverty: A Panel Data Analysis

Most of the studies which have investigated the link between corruption and poverty may draw conclusions on causality in the form of models that only show correlation. This study is set out to investigate the Granger causal relationship between corruption and poverty. It uses dynamic panel system GMM estimators, focuses on capability poverty using human poverty index (HPI) and is based on a sample of 97 developing countries during 1997-2006. The empirical findings reveal that corruption and poverty go together, with bidirectional causality.Corruption, Poverty, Panel Data Analysis

Measuring the size of underground economy in Iran with emphasis on the incentives for evasion of insurance premium payment (1961 – 2001)

This paper attempts to estimate the size of underground economy in Iran and to identify the elements having taken a role in the creation of the same for the period 1961-2001 by using modified currency ratio method as a monetary approach to the estimation of the size of underground economy. Regression model has been stipulated with the consideration of special economic circumstances prevailing in Iran. Currency ratio (circulating currency to total private sector bank deposits ratio) has been considered as a function of economic development (per capita income), inflation rate, the degree of urbanization (a measure of the development of financial institutions) and private consumption expenditures. Government expenditures to GDP ratio (a measure of government economic interventions), import tax burden, direct tax burden, social security tax burden and black market foreign exchange rate have been also considered as the indicators and variables reflecting underground economy. The model has been estimated by using an auto-regressive distributed lag (ARDL) method and the results are indicative of a high volume of such activities within the frameworks of the economy of Iran. The mean size of underground economy has been 27.76 percent of GDP during the period of study. Out of all the factors creating the underground economy, the size of government fraction of economy has had the greatest effect and social insurance burden has had the smallest one. Although the increase in insurance burden is in itself a factor in the creation of underground economy, in its turn has a striking negative impact on the performance and stability of social insurance funds

Relationships Between Shadow Economy and Foreign Direct Investment, Growth and Poverty

Economic activities may be classified under a structural approach into two major group namely formal economy and shadow economy. On a broad aspect, shadow economy encompasses the operations not taken to national accounts. Omission of some economic operations from national accounts may create numerous problems in policy making. Until recently, quantitative analyses of relationship between shadow economy and other economic variables across countries were not possible due to lack of shadow economy data. Fortunately, the recent availability of its data, in particular Schneider et al. (2010) estimates of the shadow economy as percentage of official GDP makes such an issue researchable. This study investigates the theoretical issues and empirical evidences related to 1) shadow economy and foreign direct investment, 2) shadow economy and economic growth, and 3) shadow economy and poverty. In most of the studies on possible causes of the shadow economy, tax burden is considered nationally and the effect of tax avoidance in a global scale is not mentioned. The first objective of this study is to investigate the causal relationship between FDI and the shadow economy using causality methods GMM estimator, based on observations for a sample of 162 countries during 1999-2007. The empirical results suggest that higher FDI causes higher shadow economy and higher shadow economy causes higher FDI. The second objective is to answer whether the relationship between shadow economy and economic growth depends on the level of economic development. For this, the shadow economy Kuznets curve is employed using data of 162 countries during 1999-2007, and the dynamic panel system GMM is estimated. Considering the role of micro and small enterprises (MSEs), human and social capital, and multinational enterprises (MNEs) on shadow economy and based on unified growth theory, the empirical findings indicate that a cubic, N shape, functional form justifies the relationship between shadow economy and economic growth. Governments lose a large portion of their revenues through tax evasion, tax avoidance, and inefficient fiscal authorities or in sum shadow economy, which can contribute toward poverty reduction and promoting sustainable development. Therefore, the third objective of this study is to investigate the relationship between shadow economy and poverty by explaining the mechanism through which shadow economy affects poverty via its impact on government size and economic growth, and using the human poverty index (HPI) for developing and developed countries as an index of capability poverty. In order to achieve this objective, the three-way interaction model is utilized using data of 139 developing and 23 developed countries separately during 1999-2007. For developing countries the dynamic panel system GMM and for developed countries, the fixed and random effects method of estimation is used. The results suggest that increasing the shadow economy leads to increase poverty in developing countries while it decreases poverty in developed countries

Foreign Direct Investment and Shadow Economy: A Causality Analysis Using Panel Data

The present paper investigates the link between the shadow economy and FDI using the Granger panel causality test. For that purpose we use the shadow economy and FDI data for 145 countries of five data points 1999/2000, 2001/2002, 2002/2003, 2003/2004 and 2004/2005. The system GMM estimation results show that FDI causes the shadow economy and vice versa. The empirical evidence supports the hypotheses that higher FDI causes lower shadow economy and higher shadow economy causes higher FDI.Shadow economy, FDI, panel causality

Shadow Economy and Poverty

This study attempts to investigate the relationship between shadow economy and poverty by explaining the mechanism through which shadow economy affects poverty via its impact on government size and economic growth, and using the human poverty index (HPI) for developing and developed countries. In order to achieve this objective, the three-way interaction model is utilized using data of 139 developing and 23 developed countries separately during 1999-2007. For developing countries the dynamic panel system GMM and for developed countries, the fixed and random effects method of estimation is used. The results suggest that increasing the shadow economy leads to increase poverty in developing countries while it decreases poverty in developed countries

Shadow Economy and Poverty

This study attempts to investigate the relationship between shadow economy and poverty by explaining the mechanism through which shadow economy affects poverty via its impact on government size and economic growth, and using the human poverty index (HPI) for developing and developed countries. In order to achieve this objective, the three-way interaction model is utilized using data of 139 developing and 23 developed countries separately during 1999-2007. For developing countries the dynamic panel system GMM and for developed countries, the fixed and random effects method of estimation is used. The results suggest that increasing the shadow economy leads to increase poverty in developing countries while it decreases poverty in developed countries