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The relationship between GDP and the size of the informal economy: Empirical evidence for Spain

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  • Duarte, Pablo

Abstract

The empirical evidence on the linkage of the informal economy and GDP is ambiguous. It depends on the method used to estimate the size of the informal economy. I propose a common factor of four different approximations of the size of the informal economy as an alternative. Using Spain as an example I find that GDP Granger-causes informality, but not the other way around. I also find that positive GDP shocks induce positive and statistically significant responses of the size of the informal economy. --

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Paper provided by University of Leipzig, Faculty of Economics and Management Science in its series Working Papers with number 127.

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Date of creation: 2014
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Handle: RePEc:zbw:leiwps:127

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Keywords: informal economy; dynamic factor model;

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  1. Diego Martinez-Lopez, 2013. "The underreporting of income by self-employed workers in Spain," SERIEs, Spanish Economic Association, Spanish Economic Association, vol. 4(4), pages 353-371, November.
  2. Eilat, Yair & Zinnes, Clifford, 2002. "The Shadow Economy in Transition Countries: Friend or Foe? A Policy Perspective," World Development, Elsevier, Elsevier, vol. 30(7), pages 1233-1254, July.
  3. David Giles, 1997. "Causality between the measured and underground economies in New Zealand," Applied Economics Letters, Taylor & Francis Journals, Taylor & Francis Journals, vol. 4(1), pages 63-67.
  4. Feige, Edgar L. & Urban, Ivica, 2008. "Measuring underground (unobserved, non-observed, unrecorded) economies in transition countries: Can we trust GDP?," Journal of Comparative Economics, Elsevier, vol. 36(2), pages 287-306, June.
  5. Serdar Birinci, 2013. "Trade openness, growth, and informality: Panel VAR evidence from OECD economies," Economics Bulletin, AccessEcon, vol. 33(1), pages 694-705.
  6. Roberto Dell'Anno, 2008. "What is the relationship between Unofficial and Official Economy? An analysis in Latin American Countries," Quaderni DSEMS, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia 23-2008, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
  7. Friedrich Schneider, 2004. "Shadow Economies around the World: What do we really know?," IAW Discussion Papers, Institut für Angewandte Wirtschaftsforschung (IAW) 16, Institut für Angewandte Wirtschaftsforschung (IAW).
  8. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(2 (Fall)), pages 275-363.
  9. Breitung, Jörg & Eickmeier, Sandra, 2005. "Dynamic factor models," Discussion Paper Series 1: Economic Studies 2005,38, Deutsche Bundesbank, Research Centre.
  10. Pablo Duarte & Bernd Süssmuth, 2014. "Robust Implementation of a Parsimonious Dynamic Factor Model to Nowcast GDP," CESifo Working Paper Series 4574, CESifo Group Munich.
  11. Lars P. Feld & Friedrich Schneider, 2010. "Survey on the Shadow Economy and Undeclared Earnings in OECD Countries," German Economic Review, Verein für Socialpolitik, Verein für Socialpolitik, vol. 11, pages 109-149, 05.
  12. Ceyhun Elgin & Oguz Oztunali, 2012. "Shadow Economies around the World: Model Based Estimates," Working Papers, Bogazici University, Department of Economics 2012/05, Bogazici University, Department of Economics.
  13. David E. A. Giles & Lindsay Tedds & Gugsa Werkneh, 1999. "The Canadian Underground and Measured Economies: Granger Causality Results," Econometrics Working Papers, Department of Economics, University of Victoria 9907, Department of Economics, University of Victoria.
  14. Maurizio Bovi & Roberto Dell'Anno, 2007. "The Changing Nature of the OECD Shadow Economy," ISAE Working Papers, ISTAT - Italian National Institute of Statistics - (Rome, ITALY) 81, ISTAT - Italian National Institute of Statistics - (Rome, ITALY).
  15. Friedrich Schneider & Andreas Buehn & Claudio Montenegro, 2010. "New Estimates for the Shadow Economies all over the World," International Economic Journal, Taylor & Francis Journals, Taylor & Francis Journals, vol. 24(4), pages 443-461.
  16. Christopher Bajada & Friedrich Schneider, 2005. "The Shadow Economies Of The Asia-Pacific," Pacific Economic Review, Wiley Blackwell, Wiley Blackwell, vol. 10(3), pages 379-401, October.
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