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Estimating the Size of the Shadow Economy: Methods, Problems and Open Questions

  • Friedrich Schneider
  • Andreas Bühn

This paper presents the various methods to estimate the size of the shadow economy, their strengths and weaknesses. The purpose of the paper is twofold. Firstly, it demonstrates that no ideal method to estimate the size and development of the shadow economy exists. Because of its flexibility, the MIMIC method used to get macro-estimates of the size of the shadow economy is discussed in greater detail. Secondly, the paper focuses on the definition and causal factors of the shadow economy as well as on a comparison of the size of the shadow economy using different estimation methods.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2013/wp-cesifo-2013-10/cesifo1_wp4448.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4448.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4448
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  1. Dell'Anno, Roberto, . "Estimating the Shadow Economy in Italy: a Structural Equation Approach," Economics Working Papers 2003-7, School of Economics and Management, University of Aarhus.
  2. Andreas Buehn & Friedrich Schneider, 2013. "Shadow Economies in highly developed OECD countries: What are the driving forces?," Economics working papers 2013-17, Department of Economics, Johannes Kepler University Linz, Austria.
  3. Roberto Dell´Anno, 2007. "The shadow economy in Portugal: An analysis with the MIMIC approach," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 253-277, November.
  4. Schneider, Friedrich, 1986. " Estimating the Size of the Danish Shadow Economy Using the Currency Demand Approach: An Attempt," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(4), pages 643-68.
  5. David E. A. Giles, 1998. "Measuring The Hidden Economy: Implications for Econometric Modelling," Econometrics Working Papers 9809, Department of Economics, University of Victoria.
  6. Phillip Cagan, 1958. "The Demand for Currency Relative to the Total Money Supply," Journal of Political Economy, University of Chicago Press, vol. 66, pages 303.
  7. Allingham, Michael G. & Sandmo, Agnar, 1972. "Income tax evasion: a theoretical analysis," Journal of Public Economics, Elsevier, vol. 1(3-4), pages 323-338, November.
  8. Klarita G�rxhani, 2004. "The Informal Sector in Developed and Less Developed Countries: A Literature Survey," Public Choice, Springer, vol. 120(3_4), pages 267-300, 09.
  9. David Giles, 1997. "Causality between the measured and underground economies in New Zealand," Applied Economics Letters, Taylor & Francis Journals, vol. 4(1), pages 63-67.
  10. Désirée Teobaldelli, 2011. "Federalism and the shadow economy," Public Choice, Springer, vol. 146(3), pages 269-289, March.
  11. Lars P. Feld & Friedrich Schneider, 2010. "Survey on the Shadow Economy and Undeclared Earnings in OECD Countries," German Economic Review, Verein für Socialpolitik, vol. 11, pages 109-149, 05.
  12. Frey, Bruno S & Pommerehne, Werner W, 1984. "The Hidden Economy: State and Prospects for Measurement," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 30(1), pages 1-23, March.
  13. Feige, Edgar L, 1994. "The Underground Economy and the Currency Enigma," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 119-36.
  14. Andreas Buehn & Alexander Karmann & Friedrich Schneider, 2009. "Shadow Economy and Do-it-Yourself Activities: The German Case," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 165(4), pages 701-722, December.
  15. Petersen, Hans-Georg, 1982. "Size of the Public Sector, Economic Growth and the Informal Economy: Development Trends in the Federal Republic of Germany," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 28(2), pages 191-215, June.
  16. Vito Tanzi, 1986. "The Underground Economy in the United States: Reply to Comments by Feige, Thomas, and Zilberfarb," IMF Staff Papers, Palgrave Macmillan, vol. 33(4), pages 799-811, December.
  17. Frey, Bruno S & Weck, Hannelore, 1983. "Estimating the Shadow Economy: A 'Naive' Approach," Oxford Economic Papers, Oxford University Press, vol. 35(1), pages 23-44, March.
  18. Schneider Friedrich, 2010. "The Influence of Public Institutions on the Shadow Economy: An Empirical Investigation for OECD Countries," Review of Law & Economics, De Gruyter, vol. 6(3), pages 441-468, December.
  19. J. J. Thomas, 1986. "The Underground Economy in the United States: A Comment on Tanzi," IMF Staff Papers, Palgrave Macmillan, vol. 33(4), pages 782-789, December.
  20. Friedrich Schneider & Désirée Teobaldelli, 2012. "Beyond the Veil of Ignorance: The Influence of Direct Democracy on the Shadow Economy," CESifo Working Paper Series 3749, CESifo Group Munich.
  21. Mária Lackó, 2000. "Hidden Economy - an Unknown Quantity? Comparative Analysis of Hidden Economies in Transition Countries, 1989-95," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(1), pages 117-149, March.
  22. 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.
  23. Benno Torgler & Friedrich Schneider, 2007. "The Impact of Tax Morale and Institutional Quality on the Shadow Economy," CREMA Working Paper Series 2007-01, Center for Research in Economics, Management and the Arts (CREMA).
  24. Ahumada, Hildegart & Alvaredo, Facundo & Canavese, Alfredo J., 2006. "The Demand for Currency Approach and the Size of the Shadow Economy: A Critical Assessment," Berkeley Olin Program in Law & Economics, Working Paper Series qt6zn9p98b, Berkeley Olin Program in Law & Economics.
  25. Contini, Bruno B, 1981. "Labor Market Segmentation and the Development of the Parallel Economy-The Italian Experience," Oxford Economic Papers, Oxford University Press, vol. 33(3), pages 401-12, November.
  26. Schneider, Friedrich G., 2007. "Shadow Economies and Corruption All Over the World: New Estimates for 145 Countries," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 1, pages 1-66.
  27. Hariharan Swaminathan & James Algina, 1978. "Scale freeness in factor analysis," Psychometrika, Springer, vol. 43(4), pages 581-583, December.
  28. David KUCERA & Leanne RONCOLATO, 2008. "Informal employment: Two contested policy issues," International Labour Review, International Labour Organization, vol. 147(4), pages 321-348, December.
  29. Andreas Buehn & Friedrich Schneider, 2012. "Shadow economies around the world: novel insights, accepted knowledge, and new estimates," International Tax and Public Finance, Springer, vol. 19(1), pages 139-171, February.
  30. David E. A. Giles, 1999. "Modelling the Hidden Economy and the Tax-Gap in New Zealand," Econometrics Working Papers 9905, Department of Economics, University of Victoria.
  31. Alm, James & Torgler, Benno, 2006. "Culture differences and tax morale in the United States and in Europe," Journal of Economic Psychology, Elsevier, vol. 27(2), pages 224-246, April.
  32. Stefan D. HAIGNER & Stefan JENEWEIN & Friedrich SCHNEIDER & Florian WAKOLBINGER, 2013. "Driving forces of informal labour supply and demand in Germany," International Labour Review, International Labour Organization, vol. 152(3-4), pages 507-524, December.
  33. Klovland, Jan Tore, 1984. " Tax Evasion and the Demand for Currency in Norway and Sweden. Is There a Hidden Relationship?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 86(4), pages 423-39.
  34. Axel Dreher & Christos Kotsogiannis & Steve McCorriston, 2005. "How do Institutions Affect Corruption and the Shadow Economy?," Public Economics 0502012, EconWPA, revised 24 Feb 2005.
  35. repec:cup:cbooks:9780521876742 is not listed on IDEAS
  36. Michael Pickhardt & Jordi Sarda Pons, 2006. "Size and scope of the underground economy in Germany," Applied Economics, Taylor & Francis Journals, vol. 38(14), pages 1707-1713.
  37. 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.
  38. van Eck, Robert & Kazemier, Brugt, 1988. "Features of the Hidden Economy in the Netherlands," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(3), pages 251-73, September.
  39. Bhattacharyya, Dilip K, 1999. "On the Economic Rationale of Estimating the Hidden Economy," Economic Journal, Royal Economic Society, vol. 109(456), pages F348-59, June.
  40. Thomas, Jim, 1999. "Quantifying the Black Economy: 'Measurement without Theory' Yet Again?," Economic Journal, Royal Economic Society, vol. 109(456), pages F381-89, June.
  41. Frey, Bruno S. & Weck-Hanneman, Hannelore, 1984. "The hidden economy as an 'unobserved' variable," European Economic Review, Elsevier, vol. 26(1-2), pages 33-53.
  42. Philip Cagan, 1958. "The Demand for Currency Relative to Total Money Supply," NBER Books, National Bureau of Economic Research, Inc, number caga58-1, August.
  43. Helberger, Christof & Knepel, Helmut, 1988. "How big is the shadow economy? : A re-analysis of the unobserved-variable approach of B.S. Frey and H. Weck-Hannemann," European Economic Review, Elsevier, vol. 32(4), pages 965-976, April.
  44. Colin C. Williams & Sara Nadin, 2012. "Tackling Undeclared Work in the European Union," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, vol. 13(2), pages 20-25, 07.
  45. Philip Cagan, 1958. "The Demand for Currency Relative to Total Money Supply," NBER Chapters, in: The Demand for Currency Relative to Total Money Supply, pages 1-37 National Bureau of Economic Research, Inc.
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