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Underground Economy, Evasion and Inequality

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  • Enzo Valentini

Abstract

Economic theory is paying increasing attention to a non-observed economy (NOE) and its causes. Recently, a couple of works (Rosser et al., 2000, 2003) have claimed that there is a positive relationship between income inequality and the size of NOE. This supposed relationship is not so clear and deserves in-depth analysis. There is a crucial aspect that has been completely avoided in these studies: income inequality is mainly measured using 'regular' incomes and this fact could lead to some bias. The existence of a certain size of NOE implies some income evasion that can affect the inequality indexes used in the study of the relationship between NOE and inequality. Including the regional share of NOE in a wage equation, I find that, in the specific case of the Italian private sector employees, the income evasion attached to NOE tends to reduce inequality measured by regular wages statistics.

Suggested Citation

  • Enzo Valentini, 2009. "Underground Economy, Evasion and Inequality," International Economic Journal, Taylor & Francis Journals, vol. 23(2), pages 281-290.
  • Handle: RePEc:taf:intecj:v:23:y:2009:i:2:p:281-290
    DOI: 10.1080/10168730902903433
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    References listed on IDEAS

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    1. Schneider, Friedrich, 2005. "Shadow economies around the world: what do we really know?," European Journal of Political Economy, Elsevier, vol. 21(3), pages 598-642, September.
    2. em. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo Group Munich.
    3. repec:dau:papers:123456789/1888 is not listed on IDEAS
    4. Namkee Ahn & Sara La De Rica, 1997. "The underground economy in Spain: an alternative to unemployment?," Applied Economics, Taylor & Francis Journals, vol. 29(6), pages 733-743.
    5. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
    6. Fugazza, Marco & Jacques, Jean-Francois, 2004. "Labor market institutions, taxation and the underground economy," Journal of Public Economics, Elsevier, vol. 88(1-2), pages 395-418, January.
    7. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
    8. Rosser, J. Jr. & Rosser, Marina V. & Ahmed, Ehsan, 2000. "Income Inequality and the Informal Economy in Transition Economies," Journal of Comparative Economics, Elsevier, vol. 28(1), pages 156-171, March.
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    Cited by:

    1. repec:pal:easeco:v:45:y:2019:i:2:d:10.1057_s41302-018-0120-y is not listed on IDEAS
    2. Roberto Dell’Anno, 2016. "Inequality and informality in transition and emerging countries," IZA World of Labor, Institute of Labor Economics (IZA), pages 325-325, December.

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    Keywords

    Underground economy; inequality; tax evasion;

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