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Drivers of the underground economy for over a century: A long term look for the United States

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  • Goel, Rajeev K.
  • Saunoris, James W.
  • Schneider, Friedrich

Abstract

Using data over 1870–2014, this paper provides a long-term analysis of the determinants of the U.S. shadow economy. Results show that greater trade openness and a bigger government reduced shadow activity, with inflation and prosperity being statistically insignificant. Politically, congressional party homogeneity reduced the shadow economy. Further, the U.S. shadow economy increased during World War II, while the effects of World War I were insignificant and the Great Depression reduced shadow activity. Finally, geographic changes resulting from the addition of new states to the union was a positive influence on the shadow economy. The short-run relationship(s) between the shadow economy and its determinants exhibits some differences.

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  • Goel, Rajeev K. & Saunoris, James W. & Schneider, Friedrich, 2019. "Drivers of the underground economy for over a century: A long term look for the United States," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 95-106.
  • Handle: RePEc:eee:quaeco:v:71:y:2019:i:c:p:95-106
    DOI: 10.1016/j.qref.2018.07.005
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    1. repec:bla:coecpo:v:37:y:2019:i:1:p:50-67 is not listed on IDEAS
    2. repec:kap:atlecj:v:47:y:2019:i:1:d:10.1007_s11293-019-09612-x is not listed on IDEAS
    3. Rajeev K. Goel & James W. Saunoris & Friedrich Schneider, 2019. "Growth In The Shadows: Effect Of The Shadow Economy On U.S. Economic Growth Over More Than A Century," Contemporary Economic Policy, Western Economic Association International, vol. 37(1), pages 50-67, January.

    More about this item

    Keywords

    Shadow economy; Underground economy; Determinants; Taxation; Inflation; Openness; World War; Great Depression; United States;

    JEL classification:

    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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