Skip to main content
Winning at Hide-and-Seek: The Tax Mix and the Informal Economy
Canadian Tax Journal (2002)
  • Daniel Brou, University of Western Ontario
  • Kirk Collins, University of Western Ontario

In this article the authors develop a general equilibrium model to evaluate the effects of changes in the mix of direct and indirect taxes on the informal economy, which they estimate was about 11 percent of gross domestic product in 1994. They analyze the impact of increases in only one tax rate in order to assess the revenue-raising abilities of each taxation method. They also analyze the impact of equal-yield changes in the tax mix to measure and compare the effects of favouring one taxation method over another. Results from the general equilibrium model suggest that direct taxation is preferable to indirect taxation when a government is concerned with limiting informal economic activity. A more important finding, perhaps, is that, in light of the existence of an informal sector, the poor prefer indirect taxation while the rich prefer direct. As a corollary, the authors estimate government revenue lost as a result of informal economic activity to be about $13.6 billion.

  • Tax mix,
  • tax policy,
  • tax evasion,
  • tax avoidance,
  • underground economy,
  • Canada
Publication Date
Citation Information
Daniel Brou and Kirk Collins. "Winning at Hide-and-Seek: The Tax Mix and the Informal Economy" Canadian Tax Journal Vol. 49 Iss. 6 (2002)
Available at: