Estimating Shadow Economy and Tax Evasion by Considering Behavioral Factors

The purpose of the study was to estimate the shadow economy and tax evasion considering behavioral factors during 1967-2015 in the Iranian economy. In doing so, different models were estimated at first, and the final model was selected with the multiple indicators-multiple causes (MIMIC) approach. Then using the side information and calibrating the time series, the relative size of the shadow economy and the absolute size of the shadow economy, and ultimately the tax evasion due to it are calculated. The results showed that the tax morale and import tax burden are among the main causes of the emergence of shadow economy. Hence, unlike developed countries, tax morale increases the shadow economy and tax evasion resulting from it, which reveals tax non-compliance in Iran.