IDEAS home Printed from https://ideas.repec.org/a/bla/metroe/v66y2015i2p306-338.html
   My bibliography  Save this article

Uncovering Unobserved Economy: A General Equilibrium Characterization

Author

Listed:
  • Amedeo Argentiero
  • Carlo Andrea Bollino

Abstract

This paper builds a three-sector DSGE (Dynamic Stochastic General Equilibrium) model, considering explicitly the interactions among regular, underground and criminal sectors. We generated quarterly data for unobserved variables for Italian economy over the sample 1974:01–2011:02, through Monte Carlo simulations, and we found that underground economy is about 20 per cent of GDP, whereas criminal economy is 11 per cent. The dynamic behavior of the model shows that (1) regular production has a greater relative volatility with respect to unobserved production, (2) an efficient law enforcement activity is able to weaken unobserved activities and (3) unobserved sectors' variables exhibit a negative correlation with the corresponding ones of regular economy.

Suggested Citation

  • Amedeo Argentiero & Carlo Andrea Bollino, 2015. "Uncovering Unobserved Economy: A General Equilibrium Characterization," Metroeconomica, Wiley Blackwell, vol. 66(2), pages 306-338, May.
    • Handle: RePEc:bla:metroe:v:66:y:2015:i:2:p:306-338
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/meca.12072
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Villemot, Sébastien, 2011. "Solving rational expectations models at first order: what Dynare does," Dynare Working Papers 2, CEPREMAP.
    2. Schneider, Friedrich, 2005. "Shadow economies around the world: what do we really know?," European Journal of Political Economy, Elsevier, vol. 21(3), pages 598-642, September.
    3. Guerino Ardizzi & Carmelo Petraglia & Massimiliano Piacenza & Friedrich Schneider & Gilberto Turati, 2013. "Money Laundering as a Financial Sector Crime - A New Approach to Measurement, with an Application to Italy," CESifo Working Paper Series 4127, CESifo.
    4. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo.
    5. Giles, David E A, 1999. "Measuring the Hidden Economy: Implications for Econometric Modelling," Economic Journal, Royal Economic Society, vol. 109(456), pages 370-380, June.
    6. Friedrich Schneider & Andreas Buehn & Claudio E. Montenegro, 2011. "Shadow Economies All Over the World: New Estimates for 162 Countries from 1999 to 2007," Chapters, in: Friedrich Schneider (ed.), Handbook on the Shadow Economy, chapter 1, Edward Elgar Publishing.
    7. Philip Cagan, 1958. "The Demand for Currency Relative to Total Money Supply," NBER Chapters, in: The Demand for Currency Relative to Total Money Supply, pages 1-37, National Bureau of Economic Research, Inc.
    8. Friedrich Schneider & Andreas Buehn & Claudio Montenegro, 2010. "New Estimates for the Shadow Economies all over the World," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 443-461.
    9. Guerino Ardizzi & Carmelo Petraglia & Massimiliano Piacenza & Gilberto Turati, 2013. "L’economia non osservata fra evasione e crimine: una rivisitazione del Currency Demand Approach con una applicazione al contesto italiano," Rivista di Politica Economica, SIPI Spa, issue 1, pages 229-269, January-M.
    10. Ingram, Beth F. & Kocherlakota, Narayana R. & Savin, N. E., 1997. "Using theory for measurement: An analysis of the cyclical behavior of home production," Journal of Monetary Economics, Elsevier, vol. 40(3), pages 435-456, December.
    11. Alfred Franz, 1985. "Estimates Of The Hidden Economy In Austria On The Basis Of Official Statistics," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 31(4), pages 325-336, December.
    12. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
    13. Dominik Enste & Friedrich Schneider, 2002. "Hiding in the Shadows; The Growth of the Underground Economy," IMF Economic Issues 30, International Monetary Fund.
    14. Franz, Alfred, 1985. "Estimates of the Hidden Economy in Austria on the Basis of Official Statistics," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 31(4), pages 325-336, December.
    15. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
    16. Christopher Bajada & Friedrich Schneider, 2009. "Unemployment and the Shadow Economy in the oecd," Revue économique, Presses de Sciences-Po, vol. 60(5), pages 1033-1067.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Argentiero, Amedeo & Cerqueti, Roy & Sabatini, Fabio, 2021. "Does social capital explain the Solow residual? A DSGE approach," Structural Change and Economic Dynamics, Elsevier, vol. 58(C), pages 35-53.
    2. Maria Ferrara & Elisabetta Marzano & Monica Varlese, 2022. "Fiscal Consolidation Plans with Underground Economy," CESifo Working Paper Series 9622, CESifo.
    3. Buček Jakub, 2017. "Determinants of the Shadow Economy in the Czech Regions: A Region-Level Study," Review of Economic Perspectives, Sciendo, vol. 17(3), pages 315-329, September.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Nizar, Muhammad Afdi & Purnomo, Kuntarto, 2011. "Potensi Penerimaan Pajak Dari Underground Economy Di Indonesia [underground economy activities in Indonesia]," MPRA Paper 65608, University Library of Munich, Germany.
    2. David Howden, 2011. "Europe’s Unemployment Crisis: Some Hidden Relief?," Chapters, in: David Howden (ed.), Institutions in Crisis, chapter 4, Edward Elgar Publishing.
    3. Feige, Edgar L., 2015. "Reflections on the meaning and measurement of Unobserved Economies: What do we really know about the “Shadow Economy”?," MPRA Paper 68466, University Library of Munich, Germany.
    4. Amedeo Argentiero & Carlo Andrea BOLLINO, 2013. "The Mmeasurement of Underground Economy: A Dynamic-Simulation Based Approach," Quaderni del Dipartimento di Economia, Finanza e Statistica 123/2013, Università di Perugia, Dipartimento Economia.
    5. Aristidis Bitzenis & Vasileios Vlachos & Friedrich Schneider, 2016. "An Exploration of the Greek Shadow Economy: Can Its Transfer into the Official Economy Provide Economic Relief Amid the Crisis?," Journal of Economic Issues, Taylor & Francis Journals, vol. 50(1), pages 165-196, January.
    6. Nino Kokashvili & Irakli Barbakadze & Ketevani Kapanadze, 2017. "How Participating In The Shadow Economy Affects The Growth Of Latvian Firms," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 101, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    7. Hazans, Mihails, 2011. "What explains prevalence of informal employment in European countries : the role of labor institutions, governance, immigrants, and growth," Policy Research Working Paper Series 5917, The World Bank.
    8. Goel, Rajeev K. & Saunoris, James W. & Schneider, Friedrich, 2019. "Drivers of the underground economy for over a century: A long term look for the United States," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 95-106.
    9. Friedrich Schneider & Andreas Buehn & Claudio E. Montenegro, 2011. "Shadow Economies All Over the World: New Estimates for 162 Countries from 1999 to 2007," Chapters, in: Friedrich Schneider (ed.), Handbook on the Shadow Economy, chapter 1, Edward Elgar Publishing.
    10. Schneider, Friedrich, 2014. "The Shadow Economy and Shadow Labor Force: A Survey of Recent Developments," IZA Discussion Papers 8278, Institute of Labor Economics (IZA).
    11. Markandya, Anil & González-Eguino, Mikel & Escapa, Marta, 2013. "From shadow to green: Linking environmental fiscal reforms and the informal economy," Energy Economics, Elsevier, vol. 40(S1), pages 108-118.
    12. Bashlakova, Volga & Bashlakov, Henadzi, 2021. "The study of the shadow economy in modern conditions: Theory, methodology, practice," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 468-480.
    13. Aziz N. Berdiev & James W. Saunoris, 2019. "On the Relationship Between Income Inequality and the Shadow Economy," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(2), pages 224-249, April.
    14. Paraskevi Koufopoulou & Colin C. Williams & Athanassios Vozikis & Kyriakos Souliotis & Antonios Samprakos, 2021. "Estimating Shadow Economy Size in Greece 2000 - 2018: A Flexible MIMIC Approach," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 71(3-4), pages 23-47, July-Dece.
    15. Andreas Buehn & Friedrich Schneider, 2012. "Shadow economies around the world: novel insights, accepted knowledge, and new estimates," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(1), pages 139-171, February.
    16. Friedrich Schneider, 2013. "Work in the Shadow: Some Facts," Economics working papers 2013-18, Department of Economics, Johannes Kepler University Linz, Austria.
    17. Owolabi, Adegboyega O. & Berdiev, Aziz N. & Saunoris, James W., 2022. "Is the shadow economy procyclical or countercyclical over the business cycle? International evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 257-270.
    18. Tanaka, Kiyoyasu & Hashiguchi, Yoshihiro, 2015. "Agglomeration effects of informal sector: evidence from Cambodia," IDE Discussion Papers 495, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    19. Donal Mac Géidigh & Friedrich Schneider & Matthias Blum, 2016. "Grey Matters: Charting the Development of the Shadow Economy," CESifo Working Paper Series 6234, CESifo.
    20. Psychoyios, Dimitrios & Missiou, Olympia & Dergiades, Theologos, 2021. "Energy based estimation of the shadow economy: The role of governance quality," The Quarterly Review of Economics and Finance, Elsevier, vol. 80(C), pages 797-808.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:metroe:v:66:y:2015:i:2:p:306-338. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0026-1386 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.