Fiscal Strategies to Tackle the Shadow Economy: A Literature Review

Reza Adrinata

doi:10.31092/jpkn.v7i1.3417

Authors

Reza Adrinata Banda Aceh Tax Office

DOI:

https://doi.org/10.31092/jpkn.v7i1.3417

Keywords:

shadow economy, presumptive tax, payment digitalization, SWOT analysis, fiscal policy

Abstract

The shadow economy is a significant challenge in fiscal policy management, especially in developing countries such as Indonesia. This unrecorded economic activity leads to lost tax revenue potential and disrupts the effectiveness of economic policy. This study aims to evaluate fiscal strategies that can be used to reach and tax activities in the shadow economy sector with a circulation-based approach. The method used is a literature study of more than 20 international journals and institutional reports, with SWOT analysis techniques to assess the strengths, weaknesses, opportunities, and threats of the reviewed policies. The results show that the monetary approach, particularly the Currency Demand Approach and the MIMIC Model, is effective as an indirect indicator to estimate the size of the shadow economy. Fiscal strategies such as presumptive taxation, digital payment system integration (such as QRIS), and data estimation-based tax intensification are considered complementary and have the potential to broaden the tax base. International case studies from Germany, India, and Turkey emphasise the importance of synergies between fiscal reform, digital transformation, and strong governance. The findings provide a basis for developing more adaptive, inclusive, and data-driven fiscal policies in Indonesia.

References

Alm, J., & Martinez-Vazquez, J. (2007). Measuring the informal economy in Latin America and the Caribbean.

Amri, K. (2018). Estimasi shadow economy di Indonesia dengan pendekatan currency demand. Jurnal Pajak Indonesia, 3(2).

Asian Development Bank. (2022). The informal sector and informal employment in Indonesia.

Bank Indonesia. (2019). Quick Response Code Indonesian Standard (QRIS) Implementation. https://www.bi.go.id/en/edukasi/quick-response-code-indonesian-standard/

Bank Indonesia. (2023). Laporan Penggunaan QRIS di Indonesia.

Bird, R. M., & Wallace, S. (2003). Is it really so hard to tax the hard-to-tax? The context and role of presumptive taxes. In International Tax Program Paper.

Blanchard, O. (2017). Macroeconomics (7th ed.). Pearson.

Buehn, A., & Schneider, F. (2012). Shadow economies around the world: novel insights, accepted knowledge, and new estimates. International Tax and Public Finance, 19(1), 139–171. https://doi.org/10.1007/s10797-011-9187-7

Cagan, P. (1958). The demand for currency relative to the total money supply. Journal of Political Economy, 66(4), 303–328.

Chakraborty, P., & Krishnankutty, M. (2017). Demonetization and the Informal Economy in India.

Dell’Anno, R. (2007). The shadow economy in Portugal: An analysis with the MIMIC approach. Journal of Applied Economics, 10(2), 253–277.

Dewi, S. R., & Nasution, A. (2022). Estimasi ukuran shadow economy dan implikasinya terhadap kebijakan fiskal di Indonesia. In Buletin Ekonomi Moneter dan Perbankan.

DJP. (2020). Pajak Penghasilan Final bagi UMKM: Kebijakan dan Implementasi.

DJP. (2022). Laporan Tahunan dan Strategi Kepatuhan Pajak Berbasis Data.

Elgin, C., & Oztunali, O. (2012). Shadow economies around the world: Model based estimates.

Feige, E. L. (1990). Defining and estimating underground and informal economies: The new institutional economics approach. World Development, 18(7), 989–1002.

Gërxhani, K. (2004). The Informal Sector in Developed and Less Developed Countries: A Literature Survey. Public Choice, 120(3/4), 267–300. https://doi.org/10.1023/B:PUCH.0000044287.88147.5e

Helms, M. M. (2006). Swot analysis. In In Encyclopedia of Management (6th ed., pp. 892–894). Gale.

IMF. (2019). Enhancing the Effectiveness of External Support in Building Tax Capacity in Developing Countries.

Joshi, A., Prichard, W., & Heady, C. (2014). Taxing the Informal Economy: The Current State of Knowledge and Agendas for Future Research. The Journal of Development Studies, 50(10), 1325–1347. https://doi.org/10.1080/00220388.2014.940910

Medina, L., & Schneider, F. (2018). Shadow Economies Around the World: What Did We Learn Over the Last 20 Years? IMF Working Papers, 18(17), 1. https://doi.org/10.5089/9781484338636.001

Mishkin, F. S. (2019). The Economics of Money, Banking, and Financial Markets (11th ed.). Pearson.

OECD. (2017). Shining light on the shadow economy: Opportunities and threats.

Schneider, F. (2005). Shadow economies around the world: what do we really know? European Journal of Political Economy, 21(3), 598–642. https://doi.org/10.1016/j.ejpoleco.2004.10.002

Schneider, F., & Buehn, A. (2016). Estimating the size of the shadow economy: Methods, problems and open questions.

Schneider, F., & Enste, D. H. (2000a). Shadow Economies: Size, Causes, and Consequences. Journal of Economic Literature, 38(1), 77–114. https://doi.org/10.1257/jel.38.1.77

Schneider, F., & Enste, D. H. (2000b). Shadow Economies: Size, Causes, and Consequences. Journal of Economic Literature, 38(1), 77–114. https://doi.org/10.1257/jel.38.1.77

Setiadi, A., & Syamsudin, S. (2020). Pendekatan estimasi ukuran ekonomi bayangan di Indonesia. Jurnal Ekonomi Dan Keuangan Indonesia, 68(3).

Slemrod, J., & Weber, C. (2012). Evidence of the invisible: Toward a credibility revolution in the empirical analysis of tax evasion and the informal economy. International Tax and Public Finance, 19(1), 25–53.

Tanzi, V. (1999). Uses and Abuses of Estimates of the Underground Economy. The Economic Journal, 109(456), 338–347. https://doi.org/10.1111/1468-0297.00437

TNP2K. (2020). Meningkatkan Penerimaan Negara dari Sektor Informal: Peluang dan Tantangan.

Torgler, B., & Schneider, F. (2009). The impact of tax morale and institutional quality on the shadow economy. Journal of Economic Psychology, 30(2), 228–245. https://doi.org/10.1016/j.joep.2008.08.004

Utama, W. P. (2017). Reformasi fiskal dan tantangan shadow economy di negara berkembang. Jurnal Administrasi Dan Kebijakan Publik.

Zulkhibri, M., & Ghazali, A. H. (2015). Informal economy in ASEAN: Size, causes and policy responses. Asian Economic Journal.