Does the shadow economy raise observed aggregate efficiency? A cross-country comparison

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Does the shadow economy raise observed aggregate efficiency? A cross-country comparison

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Pierre-Guillaume Méon () (DULBEA, University of Brussels, Belgium)
Friedrich G. Schneider () (Department of Economics, Johannes Kepler University Linz, Austria)
Laurent Weill () (Institut d’Etudes Politiques, Université Robert Schuman, Strasbourg, France)
Axel Dreher () (Department of Management, Technology, and Economics, KOF, ETH Zürich (Swiss Federal Institute of Technology Zurich), CH-8092 Zürich, Switzerland)

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Abstract

We analyze how adding the shadow economy to official output figures affects technical efficiency. We find that this only slightly affects the ranking of efficiency scores, but increases average efficiency. Our results are robust to the functional form of the production technology and the adjustment of labor to account for years of schooling.

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Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2006-09.

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Date of creation: Jul 2006
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Handle: RePEc:jku:econwp:2006_09

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Find related papers by JEL classification:
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
O47 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
O5 - Economic Development, Technological Change, and Growth - - Economywide Country Studies

This paper has been announced in the following NEP Reports:

NEP-ALL-2006-12-09 (All new papers)
NEP-DEV-2006-12-09 (Development)
NEP-EFF-2006-12-09 (Efficiency & Productivity)

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