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Measuring the shadow economy using company managers

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  • Putniņš, Tālis J.
  • Sauka, Arnis

Abstract

This study develops a method that uses surveys of company managers to measure the size of a shadow economy. Our method is based on the premise that company managers are the most likely to know how much business income and wages go unreported due to their unique position in dealing with both of these types of income. We use a range of survey design features to maximize the truthfulness of responses. Our method combines estimates of misreported business income, unregistered or hidden employees, and unreported wages, to arrive at an estimate of the size of a shadow economy as a percentage of GDP. This approach differs from most other studies of shadow economies, which largely focus on using macroindicators. We illustrate the application of our method to three new EU member countries. We also analyze the factors that influence companies’ participation in the shadow economy.

Suggested Citation

  • Putniņš, Tālis J. & Sauka, Arnis, 2015. "Measuring the shadow economy using company managers," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 471-490.
  • Handle: RePEc:eee:jcecon:v:43:y:2015:i:2:p:471-490
    DOI: 10.1016/j.jce.2014.04.001
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    References listed on IDEAS

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    Cited by:

    1. Colin C. Williams & Ioana A. Horodnic, 2015. "Explaining and tackling the shadow economy in Estonia, Latvia and Lithuania: a tax morale approach," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 15(2), pages 81-98.
    2. repec:bla:brjirl:v:55:y:2017:i:1:p:83-111 is not listed on IDEAS
    3. Tomas Lichard & Jan Hanousek & Randall K. Filer, 2012. "Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation," Economics Working Paper Archive at Hunter College 438, Hunter College Department of Economics.
    4. Nino Kokashvili & Irakli Barbakadze & Ketevani Kapanadze, 2017. "How Participating In The Shadow Economy Affects The Growth Of Latvian Firms," University of Tartu - Faculty of Economics and Business Administration Working Paper Series 101, Faculty of Economics and Business Administration, University of Tartu (Estonia).
    5. Schneider, Friedrich, 2017. "Restricting or Abolishing Cash: An Effective Instrument for Fighting the Shadow Economy, Crime and Terrorism?," International Cash Conference 2017 – War on Cash: Is there a Future for Cash? 162914, Deutsche Bundesbank.
    6. Anastasiya Luzgina, 2017. "Problems of corruption and tax evasion in construction sector in Belarus," Post-Print hal-01705894, HAL.
    7. Feige, Edgar L., 2015. "Reflections on the meaning and measurement of Unobserved Economies: What do we really know about the “Shadow Economy”?," MPRA Paper 68466, University Library of Munich, Germany.
    8. Konstantins Benkovskis & Eduards Goluzins & Olegs Tkacevs, 2016. "CGE model with fiscal sector for Latvia," Working Papers 2016/01, Latvijas Banka.
    9. repec:vrs:openec:v:1:y:2017:i:1:p:1-29:n:1 is not listed on IDEAS
    10. Friedrich Schneider, 2017. "Implausible Large Differences in the Sizes of Underground Economies in Highly Developed European Countries? A Comparison of Different Estimation Methods," CESifo Working Paper Series 6522, CESifo Group Munich.
    11. International Monetary Fund, 2016. "Cross-Country Report on Minimum Wages; Selected Issues," IMF Staff Country Reports 16/151, International Monetary Fund.
    12. Ioana Alexandra Horodnic & Colin C. Williams, 2016. "An evaluation of the shadow economy in Baltic states: a tax morale perspective," International Journal of Entrepreneurship and Small Business, Inderscience Enterprises Ltd, vol. 28(2/3), pages 339-358.
    13. Colin C. Williams, 2014. "Confronting the Shadow Economy," Books, Edward Elgar Publishing, number 15370.
    14. repec:ssi:jouesi:v:5:y:2017:i:2:p:263-282 is not listed on IDEAS
    15. Colin C. Williams & Friedrich Schneider, 2016. "Measuring the Global Shadow Economy," Books, Edward Elgar Publishing, number 16551.
    16. Williams Colin C. & Horodnic Ioana A., 2015. "Explaining The Prevalence Of The Informal Economy In The Baltics: An Institutional Asymmetry Perspective," European Spatial Research and Policy, Sciendo, vol. 22(2), pages 127-145, December.
    17. Colin C Williams & Ioana Alexandra Horodnic, 2016. "An institutional theory of the informal economy: some lessons from the United Kingdom," International Journal of Social Economics, Emerald Group Publishing, vol. 43(7), pages 722-738, July.

    More about this item

    Keywords

    Shadow economy; Tax evasion; Company managers; New EU members; GDP;

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • P24 - Economic Systems - - Socialist Systems and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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