DefinePK

Abstract

<jats:p>This study purposes to estimate the Pakistan’s informal economy by indirect methods and estimate the causes behind the informal economy. Ordinary least square is used for estimation of causes behind the informal economy. From GDP approach, conclude that informal economy is increasing while employment approach shows decreasing informal economy. The estimated result shows tax evasion is the main reason behind the informal economy in Pakistan. In our study, particular implications of the informal economy are identified. Informal economy plays a main role in income inequality and reducing the poverty. It limits implementing the operative public policy. The government should make such policies to control the informal economy and increasing tax evasion and corruption. If government formalize the informal economy by registering them at low cost, make the registration process easier and lower the amount of taxes imposed on them, the country’s growth will be doubled.</jats:p>