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Article Title:
Non-Tax Factors as Critical Determinants of the Size of Under Ground Economy in Nigeria: Imperative for Policy Action
by Ihendinihu, John Uzoma and Ochonma, G. Chiemela

Abstract:
The rate at which economic activities are drifting away into the ?shadow? outside the clear view and reach of government agencies in Nigeria is becoming a serious threat to needed government revenue and desired economic growth. This study is carried out with the objective of estimating the size of such shadow activities in Nigeria, and investigating the existence or otherwise of any causal links between tax and non-tax factors and growth in the size of underground economy in Nigeria. A blend of descriptive survey and causal comparative research designs were adopted. Stratified random sampling method was used in selecting two States from each of the six geo-political zones in Nigeria, and from where a total sample of 2,658 was surveyed. Annual data on basic Money Supply components, Gross Domestic Product (GDP), and total Federally Collected Tax Revenue (TAXREV) were collected for the period 1992 to 2006. Our estimation model was derived following the Gutmann's Currency Demand Approach. The Ordinary Least Square Technique was used in analysing the data. The work estimates the size of underground economy in Nigeria at 62,8% of GDP, identifying a weak positive relationship between tax burden and the size of shadow economy. It however implicates high poverty level, illiteracy, unemployment, corruption and low net wage in the official economy as significant factors that drive entrepreneurs into the unofficial economy, and advocates a shift in reform agenda from elaborate fiscal incentives to more practical approaches in implementing people-oriented and anti-corruption reform agenda that are compatible with the Millennium Development Goal.

Keywords: underground economy, tax burden, non-tax factors, tax evasion, unreported income.

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