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Increasing Shadow Economies all over the World - Fiction or Reality?

Author

Listed:
  • Enste, Dominik

    (Institut der deutschen Wirtschaft Köln (IW))

  • Schneider, Friedrich

    (University of Linz)

Abstract

Using various methods (currency demand, physical input (electricity) measure, model approach), which are discussed and criticized, estimates about the size of 67 developing, transition and OECD countries are presented. The average size of the shadow economy (in % of GDP) over 1989-93 in developing countries is 39.2%, in transition countries 23.2% and in OECD countries 14.2%. An increasing burden of taxation and social security contributions combined with rising state regulatory activities are the driving forces for the size of the shadow economy. According to some findings, a growing shadow economy has a negative impact on official GDP growth, however, a positive impact of corruption on the size of the shadow economy can be found, i.e. the bigger the corruption, the larger is the shadow economy.

Suggested Citation

  • Enste, Dominik & Schneider, Friedrich, 1998. "Increasing Shadow Economies all over the World - Fiction or Reality?," IZA Discussion Papers 26, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp26
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    References listed on IDEAS

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    More about this item

    Keywords

    tax evasion; corruption; shadow economy;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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