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The Shadow Economy in NorwayDemand for Currency Approach

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  • Isilda Shima

Abstract

The main purpose of this study is to measure the level of the shadow economy in Norway following the demand for currency approach. The question analyzed is how well does this approach capture the level of shadow economy in the face of a decreasing level of currency in circulation and an increasing use of electronic payment system. In this study, a decreasing level of the shadow economy in Norway is found since mid-1990s, starting with 8.8% of the shadow economy relative to GDP in 1991, up to 10.2% in 1995 and thereafter declining to a level of 5.6% of GDP in 2002. The explanation for the decline of the level of shadow economy relative to GDP could be a decreasing demand for currency for transaction going along with an increase of electronic payment instruments. Also, in Norway, a broad tax reform was implemented in 1992 with the purpose of reducing tax-induced distortions by lowering the tax rates and broadening the tax base. One of the main causes of shadow economy is considered to be the burden of direct and indirect tax to the individuals, but the complexity of the tax system is also an important factor that may have an impact on the level of shadow economy.

Suggested Citation

  • Isilda Shima, 2005. "The Shadow Economy in NorwayDemand for Currency Approach," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(1), pages 61-78, February.
  • Handle: RePEc:icf:icfjmo:v:03:y:2005:i:1:p:61-78
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    References listed on IDEAS

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    1. Isachsen, Arne Jon & Strom, Steinar, 1980. " The Hidden Economy: The Labor Market and Tax Evasion," Scandinavian Journal of Economics, Wiley Blackwell, vol. 82(2), pages 304-311.
    2. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo Group Munich.
    3. Isachsen, Arne Jon & Strom, Steiner, 1985. "The Size and Growth of the Hidden Economy in Norway," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 31(1), pages 21-38, March.
    4. Schneider, Friedrich, 2002. "The Size and Development of the Shadow Economies of 22 Transition and 21 OECD Countries," IZA Discussion Papers 514, Institute for the Study of Labor (IZA).
    5. Boeschoten, Willem C & Fase, Martin M G, 1992. "The Demand for Large Bank Notes," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 24(3), pages 319-337, August.
    6. Isachsen, Arne Jon & Strøm, Steinar, 1985. "The Size and Growth of the Hidden Economy in Norway," MPRA Paper 80748, University Library of Munich, Germany, revised 1985.
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    Cited by:

    1. James Alm & Abel Embaye, 2013. "Using Dynamic Panel Methods to Estimate Shadow Economies Around the World, 1984-2006," Working Papers 1303, Tulane University, Department of Economics.
    2. Stanisław Cichocki, 2008. "Shadow economy and its relations with tax system and state budget in Poland 1995 - 2007," Working Papers 2008-05, Faculty of Economic Sciences, University of Warsaw.
    3. Macias, Jose Brambila & Cazzavillan, Guido, 2009. "The dynamics of parallel economies. Measuring the informal sector in Mexico," Research in Economics, Elsevier, vol. 63(3), pages 189-199, September.
    4. Stanisław Cichocki, 2009. "Shadow Economy and Its Relations with Tax System and State Budget in Poland," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 24.
    5. Isilda Mara & Edlira Narazani, 2011. "The Effects of Flat Tax on Inequality and Informal Employment: The Case of Albania," wiiw Balkan Observatory Working Papers 94, The Vienna Institute for International Economic Studies, wiiw.

    More about this item

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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