Estimation of Informal Economy in Pakistan Through Monetary Approach

Abstract This study purposes to estimate Pakistan’s informal economy by monetary methods. The other objective of the study is to find that if tax evasion is playing a major role in the informal economy. Ordinary least square is used for estimation. From the monetary approach, we conclude that informal economy is increasing. In our study, particular implications of the informal economy are identified and conferred to accomplish and achieve the goal of continuous growth and progression of a country. The estimated result shows that informal economy grew rapidly to 13541.4 billion in 2017. On the other side, tax evasion grew rapidly from 2005 to 76184.1 billion and increases to 1886700.0 billion. The informal economy plays a main role in income inequality and reducing the poverty. It limits the implementation of the operative public policy. The government should make such policies to control the informal economy and increase tax evasion.