The Shadow Economy in Palestine: Size and Causes

Sabra, Mahmoud M.; Eltalla, Abdel Hakeem; Alfar, Abdelrahman J. K.

doi:10.5539/ijef.v7n3p98

Cited by 4 publications

(5 citation statements)

References 27 publications

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“…The scale of the shadow economy grows in tandem with the level of direct taxes levied. Consistent with prior research by Dell'Anno (2007), Dell'Anno and Davidescu (2019), Hassan and Schneider (2016), Sabra et al (2015) and Schneider et al (2019), this result supports the aforementioned findings. In poor nations, especially those with high tax rates have a devastating effect on people's disposable income.…”

Section: Discussionsupporting

confidence: 92%

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Shadow economy–financial sustainability nexus: the case of Palestine

Abuamsha,

Hattab

2023

JES

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PurposeThe present research aims at identifying the latent factors that are driving the rise of the shadow economy in Palestine, assesses its magnitude from 1998 to 2021 and investigates the influence that its size has on the financial sustainability of Palestine's public budget.Design/methodology/approachThe researchers employed the multi-indicator multi-causes (MIMIC) model to estimate the size of the shadow economy and investigate its effect on the financial sustainability of the public budget. Economic factors such as direct taxes, indirect taxes, government welfare, government spending and unemployment were considered causal variables, while indicators of financial sustainability included budget deficit, public debt and gross domestic product (GDP). The shadow economy served as an intermediary variable.FindingsBased on the findings, the researchers recommend regulating and formalizing legitimate activities within the shadow economy. Additionally, they suggest promoting investment projects to reduce unemployment rates, lowering taxes on essential goods and consumer items and providing support to local producers in Palestine. These measures aim at addressing the challenges posed by the shadow economy and fostering economic stability.Originality/valueThe study reveals that the average size of the shadow economy in Palestine between 1998 and 2021 was 43.80%, fluctuating within the range of 39.92%–46.30%. It further establishes that an increase in direct and indirect taxes as well as unemployment contributes to the expansion of the shadow economy. Conversely, government welfare and spending exert a diminishing effect. Moreover, the study finds that the rise of the shadow economy correlates with an increase in public debt, budget deficit and GDP, indicating a negative impact on the financial sustainability of the public budget.

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Section: Discussionsupporting

confidence: 92%

Section: Discussionsupporting

confidence: 90%

Shadow economy–financial sustainability nexus: the case of Palestine

Abuamsha,

Hattab

2023

JES

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“…The results showed that the size of the shadow economy in Palestine between the years (2000-2021) was 44.45% of the GDP, and this value fluctuated between (40.18%-46.91%). There is also a significant negative effect of the shadow economy on tax revenues, as tax revenues decrease as the size of the shadow economy increases, and this is consistent with the study of each of (Dell'Anno, 2007;Hassan & Schneider, 2016;Sabra et al, 2015;Schneider et al, 2019)Therefore, the income derived from the activities of the shadow…”

Section: Discussing Recommendations and Future Studiessupporting

confidence: 81%

The Impact of the Shadow Economy on Tax Revenues in Palestine Between the Years (2000-2021)

Awwad,

Al-Kababji

2023

EJAAFR

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This study aimed to identify the reasons that lead to the growth of the phenomenon of the shadow economy, and to estimate its size between the years (2000-2021), and its impact on tax revenues in Palestine. The quantitative approach was used to analyse the annual data of the variables, using the MIMIC Model. The study concluded that the size of the shadow economy in Palestine between the years (2000-2021) was (44.45%) of the gross domestic product, and that there is a negative impact of the shadow economy activities on the tax revenues. A legal framework must be provided to makes it contribute positively to the gross domestic product and national income, and increase investment projects in Palestine that lead to increasing job opportunities and reducing unemployment, which positively affects reducing the size of the shadow economy in Palestine.

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“…The formal sector has shrunk. According to Sabra, Eltalla, and Alfar (2015), the IS occupies a pivotal domain in all economies, both developed and developing, due to its immense contribution on both economic and social aspects of these nations. Literature suggests an array of macroeconomic implications as well as the negative consequences on tax revenue mobilisation emanating from the growth of the IS (Abuamria, 2019).…”

Section: Definition Of Informal Sectormentioning

confidence: 99%

The Informal Sector, the “implicit” Social Contract, the Willingness to Pay Taxes and Tax Compliance in Zimbabwe

Mpofu

2021

Accounting, Economics, and Law: A Convivium

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The growth of the informal sector in African countries has largely been viewed as an escape from regulation and deliberate intention to avoid paying taxes and these views have been widely popularised, ignoring significant details to the disadvantage of realistic tax policy design. Zimbabwe adopted a presumptive tax system for various informal sector categories to enlarge the tax base and increase tax revenues mobilised. However, presumptive taxes have not generated significant revenue. Tax compliance in the informal sector has often been studied from the tax structure design, the deterrence model perspective and capacity limitations without paying adequate attention to tax morale. Tax morale can be denoted through the peer effect of the compliance behaviour of other taxpayers, the fulfilment of the psychological social contract, transparency and accountability in the use of tax revenues as well as stakeholder communication, built on mutual trust and respect. In light of these tax morale dimensions, it is evident that tax compliance can never be divorced from the intrinsic motivation to pay taxes. The inextricable link, between tax evasion, tax compliance and tax morale, motivates this study. While previous studies on tax morale have applied single method research approaches, this study adopted a sequential exploratory mixed method research design, combining both qualitative and quantitative (through the use of document reviews, semi-structured interviews and questionnaires) in order to bring a balanced view. The study found out that tax morale was a strong driver of tax evasion and non-tax compliance in the informal sector.

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The Shadow Economy in Palestine: Size and Causes

Cited by 4 publications

References 27 publications

Shadow economy–financial sustainability nexus: the case of Palestine

Shadow economy–financial sustainability nexus: the case of Palestine

The Impact of the Shadow Economy on Tax Revenues in Palestine Between the Years (2000-2021)

The Informal Sector, the “implicit” Social Contract, the Willingness to Pay Taxes and Tax Compliance in Zimbabwe

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