Estimating Shadow Economy and Tax Evasion: Evidence from Morocco

Abstract

The purpose of this article is to assess the extent of tax evasion in Morocco for the period from 1985 to 2016. Aware of the difficulty of directly measuring a phenomenon that is hidden by nature, we are opting to use an indirect approach commonly applied in the empirical literature. Hence, we use the MIMIC method, which makes it possible first to estimate the shadow sector economy, and then deduct the tax evasion from it. Our results showed that the average extent of tax evasion and shadow economy in Morocco achieve 6.19% and 38.74% of GDP during the period studied from 1985 to 2016. Also, the tax burden, the rate of openness, the rate of urbanization, the agricultural sector, and unemployment rate are the main determinants of tax evasion in Morocco.