Abstract:
Purpose – This paper aims to use an econometric model to estimate tax evasion from the size of the
underground economy and examined the factors that trigger it.
Design/methodology/approach – The study used time series data sourced from world development
indicators and Bank of Ghana covering the period 1990-2015 to estimate tax evasion from the underground
economy using an autoregressive distributed lag model drawing on the currency demand approach.
Findings – The results confirmed the existence of a large underground economy and a high incidence of tax
evasion in Ghana. The Ghanaian situation has been aggravated by an underground economy-triggering
factor of mobile money activities, which increased by 83.1 per cent in 2015. Tax evasion averaged 20.78 per
cent of GDP over the period. The study, thus, concludes that the increased number of mobile money activities,
high tax burden and unemployment contribute to the worsening of the tax evasion problem in Ghana.
Originality/value – The study is one of the premier attempts to introduce electricity power consumption
variables in the currency demand model to estimate tax evasion from the size of the underground economy.
The authors hypothesize that the emergence of mobile money activities in its current form triggers
underground and tax-evading activities. The study, thus, calls for the formalization and regulation of the
operations of mobile money activities in emerging economies as a way of managing the underground
economy, which incubates tax evasion.
