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The shadow economy: a relevant factor for investment decisions in selected European Union countries

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Listed:
  • Miroslava Kostova Karaboytcheva

    (University of Alicante, Carretera San Vicente del Raspeig s/n - 03690 San Vicente del Raspeig - Alicante, Spain)

  • Carolina Silva Cassorla

    (University of Alicante, Carretera San Vicente del Raspeig s/n - 03690 San Vicente del Raspeig - Alicante, Spain)

Abstract

The estimation of sovereign risk indicators has a key role for the investment decisions. We were witnesses of inaccurate ratings before the last economic crisis, which altered significantly the results expected by many investors. Thus, we propose an improved rating estimation justifying the insertion of new variables, specifically, the shadow economy as a percentage of the GDP. We find that by taking it into account, the credit rating estimation improves. Our estimation assigns a higher sovereign risk to the new European Union member states, whereas the old European Union member states see their sovereign risk decreased.

Suggested Citation

  • Miroslava Kostova Karaboytcheva & Carolina Silva Cassorla, 2015. "The shadow economy: a relevant factor for investment decisions in selected European Union countries," Financial Theory and Practice, Institute of Public Finance, vol. 39(3), pages 305-323.
    • Handle: RePEc:ipf:finteo:v:39:y:2015:i:3:p:305-323
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    References listed on IDEAS

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. The shadow economy should be included in credit rating calculations for European countries
      by Blog Admin in EUROPP European Politics and Policy on 2015-10-20 18:30:33

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    More about this item

    Keywords

    shadow economy; sovereign risk; credit ratings; European Union; member states;
    All these keywords.

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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