The Shadow Economy in NorwayDemand for Currency Approach
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.
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Volume (Year): III (2005)
Issue (Month): 1 (February)
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