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Determinants and Size of the Shadow Economy - A Structural Equation Model


  • Marcus Ruge


The main objective of this paper is to analyze the determinants of the shadow economy within a coherent Structural Equation Model using a data set of 11 latent variables with 58 indicators from 35 countries. The shadow economy is closely connected to its determinants; a higher wealth and development level, a better administrative system, lower taxes and social security payments and the extent of labor market regulations determine the level of shadow economy. Germany ranks 16th of 35 countries by shadow economy, with a score of 3.6, with the best being New Zealand, 1.0, and the worst Romania, 10.

Suggested Citation

  • Marcus Ruge, 2010. "Determinants and Size of the Shadow Economy - A Structural Equation Model," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 511-523.
  • Handle: RePEc:taf:intecj:v:24:y:2010:i:4:p:511-523 DOI: 10.1080/10168737.2010.525988

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    References listed on IDEAS

    1. Friedrich Schneider & Christopher Bajada, 2003. "The Size and Development of the Shadow Economies in the Asia-Pacific," Economics working papers 2003-01, Department of Economics, Johannes Kepler University Linz, Austria.
    2. José Brambila Macias & Guido Cazzavillan, 2010. "Modeling the informal economy in Mexico:a structural equation approach," Journal of Developing Areas, Tennessee State University, College of Business, vol. 44(1), pages 345-365, September.
    3. Ulrich Thiessen, 2010. "The Shadow Economy in International Comparison: Options for Economic Policy Derived from an OECD Panel Analysis," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 481-509.
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    Cited by:

    1. Djula Borozan & Josip Arneric & Ilija Coric, 0. "A comparative study of net entrepreneurial productivity in developed and post-transition economies," International Entrepreneurship and Management Journal, Springer, vol. 0, pages 1-26.
    2. Quintano, Claudio & Mazzocchi, Paolo, 2013. "The shadow economy beyond European public governance," Economic Systems, Elsevier, vol. 37(4), pages 650-670.
    3. Tomas Lichard & Jan Hanousek & Randall K. Filer, 2012. "Measuring the Shadow Economy: Endogenous Switching Regression with Unobserved Separation," Economics Working Paper Archive at Hunter College 438, Hunter College Department of Economics.
    4. repec:spr:intemj:v:13:y:2017:i:3:d:10.1007_s11365-016-0427-2 is not listed on IDEAS
    5. repec:kap:ejlwec:v:45:y:2018:i:1:d:10.1007_s10657-014-9434-3 is not listed on IDEAS
    6. Schneider, Friedrich, 2017. "Restricting or Abolishing Cash: An Effective Instrument for Fighting the Shadow Economy, Crime and Terrorism?," International Cash Conference 2017 – War on Cash: Is there a Future for Cash? 162914, Deutsche Bundesbank.
    7. Piotr Dybka & Michal Kowalczuk & Bartosz Olesinski & Marek Rozkrut & Andrzej Toroj, 2017. "Currency demandand MIMIC models: towards a structured hybrid model-based estimation of the shadow economy size," Working Papers 2017-030, Warsaw School of Economics, Collegium of Economic Analysis.
    8. Friedrich Schneider, 2017. "Implausible Large Differences in the Sizes of Underground Economies in Highly Developed European Countries? A Comparison of Different Estimation Methods," CESifo Working Paper Series 6522, CESifo Group Munich.

    More about this item


    Shadow economy; tax system; labor system; SEM; PLS;


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