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Size and causes of the underground economy in Spain: A correction of the record and new evidence from the MCDR approach

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  • Pickhardt, Michael
  • Sardà, Jordi

Abstract

We review existing estimates of the size of the Spanish underground economy, apply the Ahumada et al. (2007, RIW) correction procedure to some of them and calculate the size of the underground economy in Spain for the period 1960 through 2009 by using the modified-cash-deposits-ratio (MCDR) approach recently developed by Pickhardt and Sardà (2011, EJLE). We then extend the MCDR approach with respect to an analysis of the causes of the Spanish underground economy. Contrary to most other studies, we show that the latter is not predominantly caused by tax pressure, but by labor market aspects, macroeconomic influences and criminal activities. Based on these findings we derive some unprecedented policy recommendations. --

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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 54.

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Date of creation: 2011
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Handle: RePEc:zbw:cawmdp:54

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Keywords: underground economy; shadow economy; hidden economy; black economy; cash-deposit-ratio; currency demand approach; MIMIC approach;

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References

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  1. Roberto Dell’Anno & Miguel Gómez-Antonio & Angel Pardo, 2007. "The shadow economy in three Mediterranean countries: France, Spain and Greece. A MIMIC approach," Empirical Economics, Springer, vol. 33(1), pages 51-84, July.
  2. Angel Alanon & M. Gomez-Antonio, 2005. "Estimating the size of the shadow economy in Spain: a structural model with latent variables," Applied Economics, Taylor and Francis Journals, vol. 37(9), pages 1011-1025.
  3. Olivier Bargain & Prudence Kwenda, 2011. "Earnings Structures, Informal Employment, And Self‐Employment: New Evidence From Brazil, Mexico, And South Africa," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 57, pages S100-S122, 05.
  4. 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.
  5. Frey, Bruno S & Weck, Hannelore, 1983. "Estimating the Shadow Economy: A 'Naive' Approach," Oxford Economic Papers, Oxford University Press, vol. 35(1), pages 23-44, March.
  6. David E. A. Giles, 1998. "Measuring The Hidden Economy: Implications for Econometric Modelling," Econometrics Working Papers 9809, Department of Economics, University of Victoria.
  7. Philip Cagan, 1958. "The Demand for Currency Relative to Total Money Supply," NBER Books, National Bureau of Economic Research, Inc, number caga58-1, April.
  8. Namkee Ahn & Sara La De Rica, 1997. "The underground economy in Spain: an alternative to unemployment?," Applied Economics, Taylor and Francis Journals, vol. 29(6), pages 733-743.
  9. Pickhardt, Michael & Sarda, Jordi, 2010. "The size of the underground economy in Germany: A correction of the record and new evidence from the Modified-Cash-Deposit-Ratio approach," CAWM Discussion Papers 36, Center of Applied Economic Research Münster (CAWM), University of Münster.
  10. Jose Maria Serrano & Maria Dolores Gadea, 2005. "What causes the hidden economy in Spain?," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 1(3), pages 143-150, May.
  11. Mariá Dolores Gadea & José Mariá Serrano-Sanz, 2002. "The hidden economy in Spain - A monetary estimation, 1964-1998," Empirical Economics, Springer, vol. 27(3), pages 499-527.
  12. 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.
  13. 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.
  14. 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.
  15. Alba, Alfonso, 1994. "Self-employment in the midst of unemployment : the case of Spain and the United States," Open Access publications from Universidad Carlos III de Madrid info:hdl:10016/4564, Universidad Carlos III de Madrid.
  16. Edgar L. Feige, 2004. "How Big IS the Irregular Economy?," Macroeconomics 0404005, EconWPA.
  17. 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.
  18. 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.
  19. repec:cup:cbooks:9780521814089 is not listed on IDEAS
  20. Phillip Cagan, 1958. "The Demand for Currency Relative to the Total Money Supply," Journal of Political Economy, University of Chicago Press, vol. 66, pages 303.
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Cited by:
  1. Michael Pickhardt & Jordi Sardà, . "Cash, Hoarding and the Underground Economy," Working Papers 201282, Institute of Spatial and Housing Economics, Munster Universitary.

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