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In the Shadow of Public Debt: Are there Relations between Public Debt and the Shadow Economy?

Author

Listed:
  • Aloys Prinz

    () (Institute of Public Economics II, University of Münster, 48143 Münster, Germany)

  • Hanno Beck

    () (Hochschule Pforzheim University, 75175 Pforzheim, Germany)

Abstract

The question of this paper is whether there is a relation between the size of the shadow economy, the inflation tax and the debt-to-GDP ratio. This relationship is relevant for an understanding of sovereign debt crisis in a currency union due to the loss of a national inflation tax and due to tax evasion as a consequence of sizeable shadow economies. In this paper, empirical evidence is presented for the effect of the size of the shadow economy on the debt-to-GDP ratio as well as for the debt-increasing effect of the start of the European Monetary Union in 1999.

Suggested Citation

  • Aloys Prinz & Hanno Beck, 2012. "In the Shadow of Public Debt: Are there Relations between Public Debt and the Shadow Economy?," Economic Analysis and Policy, Elsevier, vol. 42(2), pages 221-236, September.
  • Handle: RePEc:eee:ecanpo:v:42:y:2012:i:2:p:221-236
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Ummad Mazhar & Pierre-Guillaume Méon, 2012. "Taxing the unobservable: The impact of the shadow economy on inflation and taxation," Working Papers CEB 12-023, ULB -- Universite Libre de Bruxelles.
    2. Mazhar, Ummad & Méon, Pierre-Guillaume, 2017. "Taxing the unobservable: The impact of the shadow economy on inflation and taxation," World Development, Elsevier, vol. 90(C), pages 89-103.
    3. repec:prg:jnlpep:v:preprint:id:662:p:1-20 is not listed on IDEAS
    4. Novkovska, Blagica, 2016. "How Strongly The Hidden Economy Of A Small Country Can Be Influenced By Drastic Events: Case Of Macedonia," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, pages 187-195.

    More about this item

    Keywords

    public debt; shadow economy; inflation tax; EMU;

    JEL classification:

    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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