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Articles in Press

Threshold Effects in the Relationship between the Tax Burden and the Shadow Economy: Evidence from Taiwan (in Chinese)

  • Author Chen-Sheng Lin, Fu-Sheng Hung, and Mei-Lie Chu
  • Abstract A close relationship between the tax burden and the shadow economy (SE) has been established in the literature. While most of pre-existing studies examine this relationship by linear models, this paper adopts a non-linear threshold model to identify whether there exists any tax-burden threshold effect of this relationship in Taiwan. We find that there is a threshold effect for the rate of tax burden in this relationship, which is equal to 19.657%. If the rate of tax burden is less than 19.657%, then an increase in the rate of tax burden significantly decreases SE. By contrast, if the rate of tax burden is greater than 19.657%, then a further increase in this rate leads to an increase in SE. In addition, we present results showing that the threshold model outperforms the linear model in terms of in-sample fits, and that the relationship between the tax burden and SE, whether above or below the former’s threshold level, is quite robust with respect to different estimation methods for SE.
  • Link http://www.econ.sinica.edu.tw/UpFiles/2013090214141704234/Messagess_Flies2013100417174743120/201928刊登定稿.pdf