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Increasing Shadow Economies all over the World - Fiction or Reality?

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Author Info

  • Ernste, Dominik
  • Schneider, Friedrich

    () (Department of Economics, University of Linz)

Abstract

Using various methods (currency demand, physical input (electricity) measure, model approach), which are discussed and criticized, estimates about the size of 67 developing, transition and OECD countries are presented. The average size of the shadow economy (in % of GDP) over 1989-93 in developing countries is 39.2%, in transition countries 23.2% and in OECD countries 14.2%. An increasing burden of taxation and social security contributions combined with rising state regulatory activities are the driving forces for the size of the shadow economy. According to some findings, a growing shadow economy has a negative impact on official GDP growth, however, a positive impact of corruption on the size of the shadow economy can be found, i.e. the bigger the corruption, the larger is the shadow economy.

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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 26.

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Length: 69 pages
Date of creation: Dec 1998
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Handle: RePEc:iza:izadps:dp26

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Keywords: shadow economy; corruption; tax evasion;

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References

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Citations

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Cited by:
  1. Johnson, Simon & McMillan, John & Woodruff, Christopher, 1999. "Why do Firms Hide? Bribes and Unofficial Activity After Communism," CEPR Discussion Papers 2105, C.E.P.R. Discussion Papers.
  2. Lars P. Feld & Bruno S. Frey, 2002. "Trust breeds trust: How taxpayers are treated," Economics of Governance, Springer, vol. 3(2), pages 87-99, 07.
  3. Bruno Frey & Friedrich Schneider, 2000. "Informal and underground economy," Economics working papers 2000-04, Department of Economics, Johannes Kepler University Linz, Austria.
  4. Marco G. Ercolani, 2000. "Inflation Tax and the Hidden Economy," Economics Discussion Papers 509, University of Essex, Department of Economics.
  5. Alexandru Adriana Anamaria & Dobre Ion & Ghinararu Catalin, 2009. "Estimating The Size Of Romanian Shadow Economy Using The Currency Demand Approach," Annals of Faculty of Economics, University of Oradea, Faculty of Economics, vol. 2(1), pages 623-631, May.
  6. Doha Abdelhamid & Alia El Mahdi, 2003. "The Small Business Informality Challenge: Lessons Learned From Country Experiences and The Road Ahead of Egypt," Working Papers 0324, Economic Research Forum, revised Aug 2003.
  7. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 275-363.
  8. George M. Georgiou, 2007. "Measuring the Size of the Informal Economy: A Critical Review," Working Papers 2007, Central Bank of Cyprus.

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