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

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  • Enste, Dominik

    ()
    (Institut der deutschen Wirtschaft Köln (IW))

  • Schneider, Friedrich

    ()
    (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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Bibliographic Info

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

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Length: 68 pages
Date of creation: Dec 1998
Date of revision:
Publication status: published in: Journal of Economic Literature, 2000, 38 (1), 77-114
Handle: RePEc:iza:izadps:dp26

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Keywords: tax evasion; corruption; shadow economy;

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References

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  1. 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, International Association for Research in Income and Wealth, vol. 28(2), pages 191-215, June.
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Citations

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Cited by:
  1. Corina - Maria Ene & Andrei Stefanescu, 2011. "Size And Implication Of Underground Economy In Romania - A Mimic Approach," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(13), pages 8.
  2. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," NBER Working Papers 14520, National Bureau of Economic Research, Inc.
  3. George M. Georgiou, 2007. "Measuring the Size of the Informal Economy: A Critical Review," Working Papers, Central Bank of Cyprus 2007, Central Bank of Cyprus.
  4. 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.
  5. Bruno Frey & Friedrich Schneider, 2000. "Informal and underground economy," Economics working papers 2000-04, Department of Economics, Johannes Kepler University Linz, Austria.
  6. Lars P. Feld & Bruno S. Frey, . "Trust Breeds Trust: How Taxpayers are Treated," IEW - Working Papers 098, Institute for Empirical Research in Economics - University of Zurich.
  7. 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.
  8. Monica Ospina Londoño & Fabiola Saavedra-Caballero, 2013. "Social Assistance and Informality: Examining the link in Colombia," DOCUMENTOS DE TRABAJO CIEF 010933, UNIVERSIDAD EAFIT.
  9. Marco G. Ercolani, 2000. "Inflation Tax and the Hidden Economy," Economics Discussion Papers, University of Essex, Department of Economics 509, University of Essex, Department of Economics.

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