Tax Evasion and its Impact on Gross Domestic Product and Income Distribution

With using vector autoregressive approach, this paper studies the impact of tax evasion on both gross domestic product and Gini coefficient. In doing so, at the beginning, the vector auto regression model was run with various lags, and 1-lag vector auto regression was chosen with regard to Akaike and Schwarz information criteria for determining optimal lag. Then, the traumatic reaction functions and variance analysis are calculated for determining the impact of tax evasion on gross domestic product and Gini coefficient. The paper concludes that positive shocks of tax evasion have positive impact on gross domestic product, while they have negative impact on Gini coefficient.