The underground economy and tax evasion in Pakistan: Annual estimates (1960-1998) and the impact of dollarisation of the economy

Abstract

Several studies have been done to estimate the size of the underground economy in Pakistan. This study attempts to improve on previous work by taking a large sample size and adding a new dimension to the approaches being used by evaluating the effect of dollarisation of the economy with the help of a slightly modified version of Tanzi methodology. The results of the study confirm presence of a large underground economy and rampant tax evasion between 1960 and 1998. Moreover, dollarisation of the economy has become a problem because of a significant involvement of underground foreign exchange in the economy.