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Estimating the size of the shadow economy in Spain: a structural model with latent variables

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  • Angel Alanon
  • M. Gomez-Antonio

Abstract

There has recently been a revival of international interest in measuring the size of the shadow economy. The current study adopts an approach to the Spanish case that is based on the theory of unobservable variables. This methodology involves the estimation of structural models (MIMIC) which analyses a set of causes of the shadow economy while simultaneously taking into account its influence upon a series of indicators. The proposed model permits the determination of a relative evolution over time of the size of the shadow economy, which requires the calibration of the model with an exogenous estimation in order to obtain real values. The exogenous estimation employed is that obtained by a monetary method based on a money demand function. The results show a considerable shadow economy, measuring between 8 and 18.8% of GDP in the period 1976-2002, and demonstrate that the shadow economy is significantly influenced by the tax burden, the degree of regulation and unit labour costs. A positive correlation is obtained between GDP, money demand and the level of the shadow economy.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 37 (2005)
Issue (Month): 9 ()
Pages: 1011-1025

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Handle: RePEc:taf:applec:v:37:y:2005:i:9:p:1011-1025

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References

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  1. Giles, David E A, 1999. "Measuring the Hidden Economy: Implications for Econometric Modelling," Economic Journal, Royal Economic Society, vol. 109(456), pages F370-80, June.
  2. Marie Christine Adam & Victor Ginsburgh, 1985. "The effects of irregular markets on macroeconomic policy: some estimates for Belgium," ULB Institutional Repository 2013/1757, ULB -- Universite Libre de Bruxelles.
  3. David E. A. Giles, 1999. "Modelling the hidden economy and the tax-gap in New Zealand," Empirical Economics, Springer, vol. 24(4), pages 621-640.
  4. Loayza, Norman A., 1997. "The economics of the informal sector : a simple model and some empirical evidence from Latin America," Policy Research Working Paper Series 1727, The World Bank.
  5. Zellner, Arnold, 1970. "Estimation of Regression Relationships Containing Unobservable Independent Variables," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 11(3), pages 441-54, October.
  6. David Giles, 1999. "The rise and fall of the New Zealand underground economy: are the responses symmetric?," Applied Economics Letters, Taylor & Francis Journals, vol. 6(3), pages 185-189.
  7. 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.
  8. Namkee Ahn & Sara La De Rica, 1997. "The underground economy in Spain: an alternative to unemployment?," Applied Economics, Taylor & Francis Journals, vol. 29(6), pages 733-743.
  9. Dell'Anno, Roberto, . "Estimating the Shadow Economy in Italy: a Structural Equation Approach," Economics Working Papers 2003-7, School of Economics and Management, University of Aarhus.
  10. Massimo Bordignon & Alberto Zanardi, 1997. "Tax Evasion in Italy," Giornale degli Economisti, GDE (Giornale degli Economisti e Annali di Economia), Bocconi University, vol. 56(3-4), pages 169-210, December.
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Citations

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Cited by:
  1. Brambila Macias, Jose, 2008. "Modeling the Informal Economy in Mexico. A Structural Equation Approach," MPRA Paper 8504, University Library of Munich, Germany.
  2. Roberto Dell'Anno & Offiong Helen Solomon, 2008. "Shadow economy and unemployment rate in USA: is there a structural relationship? An empirical analysis," Applied Economics, Taylor & Francis Journals, vol. 40(19), pages 2537-2555.
  3. Luisanna Onnis & Patrizio Tirelli, 2011. "Institutions, policies and economic development. What are the causes of the shadow economy?," Working Papers 206, University of Milano-Bicocca, Department of Economics, revised Mar 2011.
  4. Arby, Muhammad Farooq & Malik, Muhammad Jahanzeb & Hanif, Muhammad Nadim, 2010. "The size of informal economy in Pakistan," MPRA Paper 22617, University Library of Munich, Germany.
  5. Luisanna Onnis & Patrizio Tirelli, 2010. "Challenging the popular wisdom. New estimates of the unobserved economy," Working Papers 184, University of Milano-Bicocca, Department of Economics, revised Apr 2010.
  6. Makochekanwa, Albert, 2010. "Estimating the size and trends of the second economy in Zimbabwe," MPRA Paper 37807, University Library of Munich, Germany.
  7. Michael Pickhardt & Jordi Sardà, . "Size and causes of the underground economy in Spain: A correction of the record and new evidence from the MCDR approach," Working Papers 201280, Institute of Spatial and Housing Economics, Munster Universitary.

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