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Drivers of the underground economy for over a century: A long term look for the United States

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  • Goel, Rajeev K.
  • Saunoris, James W.
  • Schneider, Friedrich

Abstract

Using data over 1870–2014, this paper provides a long-term analysis of the determinants of the U.S. shadow economy. Results show that greater trade openness and a bigger government reduced shadow activity, with inflation and prosperity being statistically insignificant. Politically, congressional party homogeneity reduced the shadow economy. Further, the U.S. shadow economy increased during World War II, while the effects of World War I were insignificant and the Great Depression reduced shadow activity. Finally, geographic changes resulting from the addition of new states to the union was a positive influence on the shadow economy. The short-run relationship(s) between the shadow economy and its determinants exhibits some differences.

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  • 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.
    • Handle: RePEc:eee:quaeco:v:71:y:2019:i:c:p:95-106
    DOI: 10.1016/j.qref.2018.07.005
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    Cited by:

    1. 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.
    2. Omodero Cordelia Onyinyechi, 2019. "The Financial and Economic Implications of Underground Economy: The Nigerian Perspective," Academic Journal of Interdisciplinary Studies, Sciendo, vol. 8(2), pages 155-167, July.
    3. Aziz N. Berdiev & Brandon Gomes & James W. Saunoris, 2023. "Revisiting the nexus between globalisation and the shadow economy: Untying the influences of de jure versus de facto globalisation," The World Economy, Wiley Blackwell, vol. 46(1), pages 27-54, January.
    4. Rajeev K. Goel & James W. Saunoris & Friedrich Schneider, 2019. "Growth In The Shadows: Effect Of The Shadow Economy On U.S. Economic Growth Over More Than A Century," Contemporary Economic Policy, Western Economic Association International, vol. 37(1), pages 50-67, January.
    5. Aziz N. Berdiev & James W. Saunoris, 2019. "Globalization and Informal Entrepreneurship: A Cross-Country Analysis," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 47(1), pages 65-80, March.
    6. Stephen Esaku, 2022. "Institutionalized democracy and the shadow economy in the short- and long-run: empirical analysis from Uganda," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-12, December.
    7. Chletsos, Michael & Sintos, Andreas, 2021. "Hide and seek: IMF intervention and the shadow economy," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 292-319.
    8. Canh Phuc Nguyen & Binh Nguyen Quang & Thanh Dinh Su, 2023. "Institutional frameworks and the shadow economy: new evidence of colonial history, socialist history, religion, and legal systems," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 50(3), pages 647-675, September.
    9. Salmon Mugoda & Stephen Esaku & Rose Kibuka Nakimu & Edward Bbaale & Robert Read, 2020. "The portrait of Uganda’s informal sector: What main obstacles do the sector face?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1843255-184, January.
    10. Mara, Eugenia Ramona, 2021. "Drivers of the shadow economy in European Union welfare states: A panel data analysis," Economic Analysis and Policy, Elsevier, vol. 72(C), pages 309-325.

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    More about this item

    Keywords

    Shadow economy; Underground economy; Determinants; Taxation; Inflation; Openness; World War; Great Depression; United States;
    All these keywords.

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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