Inversions have been in the news consistently this summer as multiple companies have looked for legal paths away from the U.S. corporate tax system. Burger King became the latest corporation to add to the list after they...
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- Taxes and the Underground Economy
Taxes and the Underground Economy
What explains the wide variation? One factor is burdensome taxes and regulations that push otherwise legal activities underground:
Friedrich Schneider, an economist at the Johannes Kepler University in Linz, Austria, defines the informal economy as: "All market-based legal production of goods and services that are deliberately concealed from public authorities ... to avoid payment of income, value added, or other taxes[,] ... to avoid payment of social security contributions ... [or] to avoid having to meet certain legal labor market standards, such as minimum wages, maximum working hours, safety standards, etc. ..."
[E]conomists generally agree that the shadow economy is worse in developing nations, whose webs of bureaucratic red tape and corruption are notorious.
Read the full article here. For more on how excessive tax burdens can expand underground economic activity—particularly cigarette smuggling—see our Background Paper No. 26, "How Excise Tax Differentials Affect Interstate Smuggling and Cross-Border Sales of Cigarettes in the United States."
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