Viscosity and the size of Shadow Economy in Lebanon using Stochastic Processes

Abstract

This research focuses on tax evasion in Lebanon and explores the size of the shadow economy as well as the reasons why individuals choose to evade taxes. The study draws upon various economic theories to understand the factors influencing tax evasion and its impact on the national economy. Additionally, the research provides an overview of past economic and financial crises in countries such as Greece, Cyprus, and Turkey, highlighting their similarities to the current situation in Lebanon. Furthermore, the research develops a model to analyze the dynamics of taxable and non-taxable money flow in Lebanon, considering parameters such as the basic reproduction number. By estimating the values of these parameters, the study aims to calculate the size of the shadow economy in Lebanon and provide insights into its contribution to the overall economic activity. A stochastic model and transition matrix are proposed to analyze the probability of transitioning between different states within the economy. Overall, this research sheds light on the issue of tax evasion, draws parallels with past crises, and presents a model to assess the size and dynamics of the shadow economy in Lebanon.