Informal Economy And Its Impact On Economic Development In Pakistan

The objective of this research paper is to measure the volume of informal economy and tax evasion and its impact on Pakistan's economic development during the period 1975-2016. Time series data was used in the study and it was collected from Pakistan Economic Survey, State Bank of Pakistan, Asian Development Bank and World Bank. ADF Test, ARDL's Bound Test and Error Correction Model were used to check stationarity, long run and short run relationship between variables. It was found that taxation rate, inflation rate and fertility rate have negative effect while employment, secondary school enrolment have positive effect on per capita income and GDP in the long run and short run. High tax rates and high cost of doing business, high inflation and high fertility are the main causes of tax evasion and low per capita income.