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The size of the underground economy in Germany: A correction of the record and new evidence from the Modified-Cash-Deposit-Ratio approach

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  • Pickhardt, Michael
  • Sarda, Jordi

Abstract

Based on the Ahumada et al. (2007, Review of Income and Wealth) critique we revise existing estimates of the size of the German underground economy. Among other things, it turns out that most of these estimates are untenable and that the tax pressure induced size of the German underground economy may be much lower than previously thought. To this extent, German policy and law makers have been misguided during the last three decades. Therefore, we introduce the Modified-Cash-Deposit-Ratio (MCDR) approach, which is not subject to the recent critique and apply it to Germany for the period 1960 to 2008. --

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Bibliographic Info

Paper provided by Center of Applied Economic Research Münster (CAWM), University of Münster in its series CAWM Discussion Papers with number 36.

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Date of creation: 2010
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Handle: RePEc:zbw:cawmdp:36

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Keywords: underground economy; shadow economy; cash-depositratio; currency demand approach; MIMIC approach;

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References

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  1. Lars P. Feld & Friedrich Schneider, 2010. "Survey on the Shadow Economy and Undeclared Earnings in OECD Countries," German Economic Review, Verein für Socialpolitik, vol. 11, pages 109-149, 05.
  2. Panayiota Lyssiotou & Panos Pashardes & Thanasis Stengos, 2004. "Estimates of the black economy based on consumer demand approaches," Economic Journal, Royal Economic Society, vol. 114(497), pages 622-640, 07.
  3. Friedrich Schneider & Dominik Enste, 2000. "Shadow Economies Around the World - Size, Causes, and Consequences," IMF Working Papers 00/26, International Monetary Fund.
  4. Friedrich Schneider & Ursula Windischbauer, 2010. "Money Laundering: Some Facts," Economics of Security Working Paper Series 25, DIW Berlin, German Institute for Economic Research.
  5. Klovland, Jan Tore, 1984. " Tax Evasion and the Demand for Currency in Norway and Sweden. Is There a Hidden Relationship?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 86(4), pages 423-39.
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  7. David E. A. Giles, 1998. "Measuring The Hidden Economy: Implications for Econometric Modelling," Econometrics Working Papers 9809, Department of Economics, University of Victoria.
  8. Gerhard Graf, 2007. "Die volkswirtschaftliche Bedeutung von Schwarzarbeit," List Forum Chapter, in: List Forum Band 33, edition 1, volume 2, chapter 6, pages 106-128 List Gesellschaft e.V..
  9. Isachsen, Arne Jon & Strom, Steiner, 1985. "The Size and Growth of the Hidden Economy in Norway," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 31(1), pages 21-38, March.
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  11. Vito Tanzi, 1983. "The Underground Economy in the United States: Annual Estimates, 1930-80 (L'économie clandestine aux Etats-Unis: estimations annuelles, 1930-80) (La "economía subterránea" de Estados," IMF Staff Papers, Palgrave Macmillan, vol. 30(2), pages 283-305, June.
  12. Philip Cagan, 1958. "The Demand for Currency Relative to Total Money Supply," NBER Books, National Bureau of Economic Research, Inc, number caga58-1, April.
  13. Ahumada, Hildegart & Alvaredo, Facundo & Canavese, Alfredo, 2008. "The monetary method to measure the shadow economy: The forgotten problem of the initial conditions," Economics Letters, Elsevier, vol. 101(2), pages 97-99, November.
  14. Trevor Breusch, 2005. "Australia's Cash Economy: Are the Estimates Credible?," The Economic Record, The Economic Society of Australia, vol. 81(255), pages 394-403, December.
  15. 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.
  16. Frey, Bruno S & Pommerehne, Werner W, 1984. "The Hidden Economy: State and Prospects for Measurement," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 30(1), pages 1-23, March.
  17. Edgar L. Feige, 2004. "How Big IS the Irregular Economy?," Macroeconomics 0404005, EconWPA.
  18. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
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  20. Trevor Breusch, 2005. "Estimating the Underground Economy using MIMIC Models," Econometrics 0507003, EconWPA, revised 25 Jul 2005.
  21. Andreas Buehn & Alexander Karmann & Friedrich Schneider, 2009. "Shadow Economy and Do-it-Yourself Activities: The German Case," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 165(4), pages 701-722, December.
  22. Hildegart Ahumada & Facundo Alvaredo & Alfredo Canavese, 2007. "The Monetary Method And The Size Of The Shadow Economy: A Critical Assessment," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 53(2), pages 363-371, 06.
  23. Michael Pickhardt & Jordi Sarda Pons, 2006. "Size and scope of the underground economy in Germany," Applied Economics, Taylor and Francis Journals, vol. 38(14), pages 1707-1713.
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Cited by:
  1. Guerino Ardizzi & Carmelo Petraglia & Massimiliano Piacenza & Gilberto Turati, 2011. "Measuring the Shadow Economy with the Currency Demand Approach - A Reinterpretation of the methodology, with an application to Italy," Working papers 22, Former Department of Economics and Public Finance "G. Prato", University of Torino.
  2. Michael Pickhardt & Jordi Sardà, . "Size and causes of the underground economy in Spain: A correction of the record and new evidence from the MCDR approach," Working Papers 201280, Institute of Spatial and Housing Economics, Munster Universitary.
  3. Michael Pickhardt & Jordi Sardà, . "Cash, Hoarding and the Underground Economy," Working Papers 201282, Institute of Spatial and Housing Economics, Munster Universitary.
  4. Guerino Ardizzi & Carmelo Petraglia & Massimiliano Piacenza & Gilberto Turati, 2012. "Measuring the underground economy with the currency demand approach: a reinterpretation of the methodology, with an application to Italy," Temi di discussione (Economic working papers) 864, Bank of Italy, Economic Research and International Relations Area.

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