Article: An econometric analysis of the underground economy and tax evasion in Kuwait Journal: International Journal of Business and Globalisation (IJBG) 2020 Vol.25 No.3 pp.307 - 331 Abstract: Up to now, no individual study on Kuwait with respect to the underground economy and tax evasion has been conducted using the recent adjusted form of currency demand function model (CDFM) before. This paper estimates the size of underground economy behind tax evasion from 1991: Q1 to 2010: Q4. It applies the Zivot-Andrews (ZA) procedure for the stationarity analysis, and Gregory-Hansen (GH) long run cointegrating technique for estimating the underground economy based on the adjusted currency demand function approach. While the general-to-specific technique is used to estimate the short-run error correction model. Toda-Yamamoto test is also used to explore the causal relationship between the underground economy and the non-oil tax revenues' variable. It finds that the averaged sizes of the underground economy and the tax evasion to the official gross domestic product (GDP) in Kuwait constituted about 24.95%, and 2.83% respectively. Inderscience Publishers - linking academia, business and industry through research

Title: An econometric analysis of the underground economy and tax evasion in Kuwait

Authors: Awadh Ahmed Mohammed Gamal; Jauhari Dahalan; K. Kuperan Viswanathan

Addresses: FPE, Sultan Idris Education University (UPSI), Malaysia; Othman Yeop Abdullah Graduate School of Business (OYAGSB), Universiti Utara Malaysia, 06010 UUM Sintok, Kedah Darul Aman, Malaysia ' Business School, Universiti Kuala Lumpur, 143, Jalan Raja Muda Abdul Aziz, Kampung Baru, 50300 Kuala Lumpur, Wilayah Persekutuan Kuala Lumpur, Malaysia ' Othman Yeop Abdullah Graduate School of Business (OYAGSB), Universiti Utara Malaysia, 06010 UUM Sintok, Kedah Darul Aman, Malaysia

Abstract: Up to now, no individual study on Kuwait with respect to the underground economy and tax evasion has been conducted using the recent adjusted form of currency demand function model (CDFM) before. This paper estimates the size of underground economy behind tax evasion from 1991: Q1 to 2010: Q4. It applies the Zivot-Andrews (ZA) procedure for the stationarity analysis, and Gregory-Hansen (GH) long run cointegrating technique for estimating the underground economy based on the adjusted currency demand function approach. While the general-to-specific technique is used to estimate the short-run error correction model. Toda-Yamamoto test is also used to explore the causal relationship between the underground economy and the non-oil tax revenues' variable. It finds that the averaged sizes of the underground economy and the tax evasion to the official gross domestic product (GDP) in Kuwait constituted about 24.95%, and 2.83% respectively.

Keywords: underground economy; tax evasion; stationarity with structural break; Gregory-Hansen cointegration test; adjusted currency demand model; Toda-Yamamoto test.

DOI: 10.1504/IJBG.2020.109021

International Journal of Business and Globalisation, 2020 Vol.25 No.3, pp.307 - 331

Received: 26 Apr 2018
Accepted: 05 Jul 2018
Published online: 17 Aug 2020 *

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Title: An econometric analysis of the underground economy and tax evasion in Kuwait

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