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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 and 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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  1. Adam, M. C. & Ginsburgh, V., 1985. "The effects of irregular markets on macroeconomic policy : Some estimates for belgium," European Economic Review, Elsevier, vol. 29(1), pages 15-33.
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Cited by:
  1. 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.
  2. 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.
  3. José Brambila Macias & Guido Cazzavillan, 2008. "Modelling the Informal Economy in Mexico. A Structural Equation Approach," Working Papers 2008_41, Department of Economics, University of Venice "Ca' Foscari".
  4. Muhammad Farooq Arby & Muhammad Jahanzeb Malik & Muhammad Nadim Hanif, 2010. "The Size of Informal Economy in Pakistan," Working Papers id:2493, eSocialSciences.
  5. Makochekanwa, Albert, 2010. "Estimating the size and trends of the second economy in Zimbabwe," MPRA Paper 37807, University Library of Munich, Germany.

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