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Modelling the Egyptian Shadow Economy: A Currency Demand and A MIMIC Model Approach

Author

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  • Mai Hassan
  • Friedrich Schneider

Abstract

We estimate the size and trend of the Egyptian shadow economy using two of the most common methods: the currency demand approach and the structural equation MIMIC model. To the best of our knowledge, this is the first comprehensive study to estimate the size of the shadow economy in Egypt during the last four decades (1976 to 2013). In addition to the standard explanatory variables used in the currency demand approach and MIMIC model, we consider variables that are specifically related to the Egyptian economy such as self-employment, agricultural importance and a proxy for institutional quality of democratic institutions. Our results indicate a decreasing trend of the size of the shadow economy from more than 50% in 1976 to 32% in 2013, yet it still comprises a large portion of the official GDP.

Suggested Citation

  • Mai Hassan & Friedrich Schneider, 2016. "Modelling the Egyptian Shadow Economy: A Currency Demand and A MIMIC Model Approach," CESifo Working Paper Series 5727, CESifo.
  • Handle: RePEc:ces:ceswps:_5727
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    Citations

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    Cited by:

    1. 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.
    2. Evgeniya Baturina & Alexander Litvinenko, 2018. "Monitoring of Shadow Cash Flows Using Computer Modelling," Economy of region, Centre for Economic Security, Institute of Economics of Ural Branch of Russian Academy of Sciences, vol. 1(1), pages 326-338.
    3. Sahnoun, Marwa & Abdennadher, Chokri, 2019. "The nexus between unemployment rate and shadow economy: A comparative analysis of developed and developing countries using a simultaneous-equation model," Economics Discussion Papers 2019-30, Kiel Institute for the World Economy (IfW).
    4. Schneider Friedrich & Buehn Andreas, 2017. "Shadow Economy: Estimation Methods, Problems, Results and Open questions," Open Economics, De Gruyter, vol. 1(1), pages 1-29, March.

    More about this item

    Keywords

    shadow economy of Egypt; currency demand approach (CDA); MIMIC estimation;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • I20 - Health, Education, and Welfare - - Education - - - General
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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