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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)

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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Bibliographic Info

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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Keywords: shadow economy; income; aggregate productivity; efficiency;

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  1. Schneider, Friedrich, 2005. "Shadow economies around the world: what do we really know?," European Journal of Political Economy, Elsevier, vol. 21(3), pages 598-642, September.
  2. Francesco Caselli, 2004. "Accounting for Cross-Country Income Differences," NBER Working Papers 10828, National Bureau of Economic Research, Inc.
  3. Kneller, Richard & Andrew Stevens, Philip, 2003. "The specification of the aggregate production function in the presence of inefficiency," Economics Letters, Elsevier, vol. 81(2), pages 223-226, November.
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