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Shadow Economies around the World: What do we really know?

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Author Info
Friedrich Schneider ()

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Abstract

Using the DYMIMIC approach, estimates of the shadow economy in 110 developing, transition and developed OECD countries are presented. The average size of the shadow economy (in percent of official GDP) over 1999-2000 in developing countries is 41%, in transition countries 38% and in OECD countries 17%. An increasing burden of taxation and social security contributions are the driving forces of the shadow economy. If the shadow economy increases by one percent the growth rate of the “official” GDP of a developing (of a developed and/or transition) country decreases by 0.6% (increases by 0.8 and 1.0% respectively).

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File URL: http://www.iaw.edu/RePEc/iaw/pdf/iaw_dp_16.pdf
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Publisher Info
Paper provided by Institut für Angewandte Wirtschaftsforschung (IAW) in its series IAW Discussion Papers with number 16.

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Length: 68 pages
Date of creation: Jul 2004
Date of revision:
Handle: RePEc:iaw:iawdip:16

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Related research
Keywords: shadow economy; interaction of the shadow economy with the official one; tax burden; government regulation; DYMIMIC method;

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Find related papers by JEL classification:
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
O5 - Economic Development, Technological Change, and Growth - - Economywide Country Studies
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
H2 - Public Economics - - Taxation, Subsidies, and Revenue
H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion

References listed on IDEAS
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  1. Frey, Bruno S. & Weck-Hanneman, Hannelore, 1984. "The hidden economy as an 'unobserved' variable," European Economic Review, Elsevier, vol. 26(1-2), pages 33-53. [Downloadable!] (restricted)
  2. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-92, May. [Downloadable!] (restricted)
  3. Friedrich Schneider, 2000. "The Increase of the size of the shadow economy of 18 OECD countries: Some preliminary explanations," Economics working papers 2000-08, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
    Other versions:
  4. Tanzi, Vito, 1999. "Uses and Abuses of Estimates of the Underground Economy," Economic Journal, Royal Economic Society, vol. 109(456), pages F338-47, June. [Downloadable!] (restricted)
  5. 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. [Downloadable!] (restricted)
  6. Giles, David E A, 1999. "The Rise and Fall of the New Zealand Underground Economy: Are the Responses Symmetric?," Applied Economics Letters, Taylor and Francis Journals, vol. 6(3), pages 185-89, March. [Downloadable!] (restricted)
  7. 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. [Downloadable!] (restricted)
    Other versions:
  8. Edgar L. Feige, 2005. "The Underground Economy And The Currency Enigma," Macroeconomics 0502004, EconWPA. [Downloadable!]
  9. Simon Johnson & Daniel Kaufman & Andrei Shleifer, 1997. "The Unofficial Economy in Transition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(1997-2), pages 159-240. [Downloadable!]
  10. 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. [Downloadable!]
  11. Annette Mummert & Friedrich Schneider, 2001. "The German Shadow Economy: Parted in a United Germany?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(3), pages 286-, July.
  12. Kirchler, Erich & Maciejovsky, Boris & Schneider, Friedrich, 2003. "Everyday representations of tax avoidance, tax evasion, and tax flight: Do legal differences matter?," Journal of Economic Psychology, Elsevier, vol. 24(4), pages 535-553, August. [Downloadable!] (restricted)
    Other versions:
  13. Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 129-162, December. [Downloadable!] (restricted)
  14. Edgar L. Feige, 2005. "A Re-Examination of the 'Underground Economy' in the United States; A Comment on Tanzi," Macroeconomics 0501021, EconWPA. [Downloadable!]
  15. Friedrich Schneider & Kausik Chaudhuri & Sumana Chatterjee, 2003. "The Size and Development of the Indian Shadow Economy and a Comparison with other 18 Asian Countries: An Empirical Investigation," Economics working papers 2003-02, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
  16. 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. [Downloadable!]
  17. Petersen, Hans-Georg, 1982. "Size of the Public Sector, Economic Growth and the Informal Economy: Development Trends in the Federal Republic of Germany," Review of Income and Wealth, Blackwell Publishing, vol. 28(2), pages 191-215, June.
  18. Contini, Bruno B, 1981. "Labor Market Segmentation and the Development of the Parallel Economy-The Italian Experience," Oxford Economic Papers, Oxford University Press, vol. 33(3), pages 401-12, November. [Downloadable!] (restricted)
  19. Friedrich Schneider & Christopher Bajada, 2003. "The Size and Development of the Shadow Economies in the Asia-Pacific," Economics working papers 2003-01, Department of Economics, Johannes Kepler University Linz, Austria. [Downloadable!]
  20. James Andreoni & Brian Erard & Jonathan Feinstein, 1998. "Tax Compliance," Journal of Economic Literature, American Economic Association, vol. 36(2), pages 818-860, June. [Downloadable!] (restricted)
  21. Giles, David E A, 1997. "Causality between the Measured and Underground Economies in New Zealand," Applied Economics Letters, Taylor and Francis Journals, vol. 4(1), pages 63-67, January. [Downloadable!] (restricted)
  22. Edgar L. Feige, 2005. "Overseas Holdings Of U.S.Currency And The Underground Economy," Macroeconomics 0501022, EconWPA. [Downloadable!]
  23. Klarita Gërxhani, 2004. "The Informal Sector in Developed and Less Developed Countries: A Literature Survey," Public Choice, Springer, vol. 120(3_4), pages 267-300, 09. [Downloadable!]
  24. 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. [Downloadable!] (restricted)
    Other versions:
  25. Giles, David E A, 1997. "Testing for Asymmetry in the Measured and Underground Business Cycles in New Zealand," The Economic Record, The Economic Society of Australia, vol. 73(222), pages 225-32, September.
  26. Pissarides, Christopher A. & Weber, Guglielmo, 1989. "An expenditure-based estimate of Britain's black economy," Journal of Public Economics, Elsevier, vol. 39(1), pages 17-32, June. [Downloadable!] (restricted)
  27. Phillip Cagan, 1958. "The Demand for Currency Relative to the Total Money Supply," Journal of Political Economy, University of Chicago Press, vol. 66, pages 303. [Downloadable!] (restricted)
  28. Friedrich Schneider & Dominik H. Enste, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March. [Downloadable!] (restricted)
  29. Klovland, Jan Tore, 1984. " Tax Evasion and the Demand for Currency in Norway and Sweden. Is There a Hidden Relationship?," Scandinavian Journal of Economics, Blackwell Publishing, vol. 86(4), pages 423-39.
  30. Clotfelter, Charles T, 1983. "Tax Evasion and Tax Rates: An Analysis of Individual Returns," The Review of Economics and Statistics, MIT Press, vol. 65(3), pages 363-73, August. [Downloadable!] (restricted)
  31. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June. [Downloadable!] (restricted)
  32. Bhattacharyya, Dilip K, 1999. "On the Economic Rationale of Estimating the Hidden Economy," Economic Journal, Royal Economic Society, vol. 109(456), pages F348-59, June. [Downloadable!] (restricted)
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