Structural modeling of the relationship between tax evasion and the hidden economy with the Panel MIMIC approach

The main purpose of this study is to investigate the type and extent of tax evasion relationship with hidden economy. Based on the theoretical foundations and background of studies, influential and influential variables on tax evasion and hidden economy were identified and then based on Panel-MIMIC structural methodology for the period 2011-2018 in 30 selected provinces and using ML estimator, the relationship between these two variables Was modeled. Due to the similarity of influential variables on tax evasion and hidden economy, the selected model was analyzed as a system of simultaneous equations. The results showed that although the hidden economy has a positive relationship with tax evasion, the causality of tax evasion on the hidden economy has a larger coefficient, which indicates that tax evasion is more on the hidden economy than the similar effect of the hidden economy on tax evasion. It has an effect. Other research shows that income and profit taxes, GDP per capita and government size have a positive effect on tax evasion and open economy has a negative effect on tax evasion. It was also found that with the increase of tax evasion, income distribution becomes more unequal and the labor force participation rate of the economy decreases.