Measuring the Extent of Hidden Economy in Bangladesh and its Policy Implications

Abstract

In this thesis, various aspects of hidden economy or Bangladesh have been analyzed and examined. Reza (l 989), Barakat (199 l), Hasan (1997) and Asaduzzaman (1998) studied the underground economic activities and tried to estimate the size of hidden economy in Bangladesh. No elaborate study was made earlier in this important sector. The present study is comprehensive in nature and both mathematical models and survey methods arc simultaneously used in this thesis. The study covers a wide range from estimation of the size of hidden economy to explore the causes or its generation and the consequences and their policy implications. The main objectives of the study are to estimate the extent of hidden economy in Bangladesh and to review the issues and policies adopted by various Governments to combat it. The currency demand approach to estimate the size of hidden economy, the survey method, and content analysis method are used in the study. Data were collected from both primary and secondary sources. Vito Tanzi was among the first economists to pioneer the systematic quantitative study of the hidden economy 111 early 1980s. Different economists and researchers report the presence of considerable size of hidden economy in Bangladesh. To estimate the size or hidden economy in Bangladesh currency demand model, initially developed by Cagan ( 1958) and lately revised by Vito Tanzi ( 1980, 1983) is used. The size of hidden economy is found at about 9% of real GDP which is around Tic 8.000 crore. In Bangladesh tax revenue shares about 70% or local resources. The Bangladesh Civil Service (Taxation) and Bangladesh Civil Service (Customs and Excise) officials are directly related to and bear the main responsibility for the collection of direct and indirect taxes or various categories. A survey was conducted on these officers. For this purpose a set of questionnaire with open and close type’s questions was prepared and distributed among the officers. At present, there are 750 officers who belong to these two cadres and discharge their duties with various capacities……………………….