Measuring the unregistered economy using the physical input method: Tax audit in Türkiye

In this study, the subject of the informal economy and the effects of tax audits in Turkiye is discussed. The informal economy is a global problem in every country, to a greater or lesser extent, depending on their level of development. The increase in the informal economy in any country is a problem that disrupts income distribution, equality, and justice for those living there and leads to unfair competition. In the study, the definition of the informal economy, its effects, causes, scope, estimation, and combat methods are explained. Measuring the informal economy is complex; different data is collected depending on the methods used. The study used the electricity consumption approach for 2014-2022 to estimate the size of the informal economy in OECD countries and Turkiye. This study aims to consider the electricity consumption method, which is less preferred than other estimation methods when estimating the size of the informal economy. In addition, the estimation method was examined from a different perspective by using electricity production data against the possibility of illegal use of electricity. Today, the modern tax system is based on declarations. Of course, the declaration system also has risks. Tax administrations are obliged to carry out the necessary audits to prevent taxpayers from engaging in unregistered activities. The study examines how the tax audit system works in Turkiye in terms of efficiency and effectiveness. It also includes information about the work and struggles of the institutions in charge of this issue. Finally, recent research has shown that while the complete elimination of the informal economy may be a challenge, there is potential for significant shrinkage in the long run. The key to this success lies in the policy recommendations provided, which have the potential to make a substantial impact on reducing the informal economy. Keywords: Informal Economy, Tax Audit, Electricity Consumption Method