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An Exploration of the Greek Shadow Economy: Can Its Transfer into the Official Economy Provide Economic Relief Amid the Crisis?

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  • Aristidis Bitzenis
  • Vasileios Vlachos
  • Friedrich Schneider

Abstract

We explore the determinants of the Greek shadow economy, its interaction with the official economy, and its relationship with corruption. In doing so, we undertake — for the first time — an interdisciplinary review of economic and political studies on the size and determinants of the shadow economy, tax evasion, undeclared work and, moreover, of their relation with corruption in Greece in order to reveal the extent and complexity of these phenomena. We estimate the size and determinants of the shadow economy via a multiple-indicators-multiple-causes (MIMIC) approach. Our findings indicate that the important determinants are factors related to macroeconomic conditions, such as unemployment and GDP growth, and institutional factors, such as tax morale and the rule of law. We also indicate that the shadow economy and corruption are complementary and that the official and the shadow economy substitute each other over the business cycle. An adoption of policy based on these findings would lead to a successful transfer of part of the shadow economy to the official economy, would boost government revenue, and would eventually lead the Greek economy out of the depression that emerged as a result of the sovereign debt crisis.

Suggested Citation

  • Aristidis Bitzenis & Vasileios Vlachos & Friedrich Schneider, 2016. "An Exploration of the Greek Shadow Economy: Can Its Transfer into the Official Economy Provide Economic Relief Amid the Crisis?," Journal of Economic Issues, Taylor & Francis Journals, vol. 50(1), pages 165-196, January.
  • Handle: RePEc:mes:jeciss:v:50:y:2016:i:1:p:165-196
    DOI: 10.1080/00213624.2016.1147918
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    File URL: http://hdl.handle.net/10.1080/00213624.2016.1147918
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    Citations

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    Cited by:

    1. Donal Mac Géidigh & em. Friedrich Schneider & Matthias Blum, 2016. "Grey Matters: Charting the Development of the Shadow Economy," CESifo Working Paper Series 6234, CESifo Group Munich.
    2. Phoebe W. Ishak & Ulrich Fritsche, 2019. "Oil Price Shocks and Protest: Can Shadow Economy Mitigate?," Macroeconomics and Finance Series 201901, University of Hamburg, Department of Socioeconomics.
    3. Michalis Rousakis & Romanos Priftis, 2017. "Deposit Flight and Capital Controls: A Tale from Greece," Economics Series Working Papers 822, University of Oxford, Department of Economics.
    4. repec:bla:coecpo:v:37:y:2019:i:1:p:50-67 is not listed on IDEAS
    5. 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.
    6. repec:pkk:sfyr17:20-34 is not listed on IDEAS

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