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Shadow Economies in highly developed OECD countries: What are the driving forces?

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  • Andreas Buehn
  • Friedrich Schneider

Abstract

The main focus of this paper lies on the “driving forces” of the development and size of the shadow economy in 39 highly developed OECD countries. The most influential factors on the shadow economy are tax policies and state regulation, which, if rising, increase the shadow economy, though other, economic factors like unemployment are important, too. Specifically, it is shown that the main driving forces of the size and development of the shadow economy are unemployment, self-employment and the tax burden, which impact the shadow economies in these 30 OECD countries to a different degree. Between 1999 and 2010 unemployment and self-employment have on average the largest relative impact (14.6%), followed by tax morale (14.5%), GDP growth (14.3%), business freedom (14.2%) and indirect taxes (14.1%).

Suggested Citation

  • 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.
  • Handle: RePEc:jku:econwp:2013_17
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    References listed on IDEAS

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    1. Andreas Buehn & Friedrich Schneider, 2012. "Shadow economies around the world: novel insights, accepted knowledge, and new estimates," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 19(1), pages 139-171, February.
    2. 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.
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    7. Bhattacharyya, Dilip K, 1999. "On the Economic Rationale of Estimating the Hidden Economy," Economic Journal, Royal Economic Society, vol. 109(456), pages 348-359, June.
    8. Tanzi, Vito, 1999. "Uses and Abuses of Estimates of the Underground Economy," Economic Journal, Royal Economic Society, vol. 109(456), pages 338-347, June.
    9. Colin Williams & Jan Windebank, 2001. "Reconceptualising Paid Informal Exchange: Some Lessons from English Cities," Environment and Planning A, , vol. 33(1), pages 121-140, January.
    10. Enrico Marcelli, 2004. "Unauthorized Mexican Immigration, Day Labour and other Lower-wage Informal Employment in California," Regional Studies, Taylor & Francis Journals, vol. 38(1), pages 1-13.
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    12. Torgler, Benno & Schneider, Friedrich, 2009. "The impact of tax morale and institutional quality on the shadow economy," Journal of Economic Psychology, Elsevier, vol. 30(2), pages 228-245, April.
    13. Egle Tafenau & Helmut Herwartz & Friedrich Schneider, 2010. "Regional Estimates of the Shadow Economy in Europe," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 629-636.
    14. Thomas, Jim, 1999. "Quantifying the Black Economy: 'Measurement without Theory' Yet Again?," Economic Journal, Royal Economic Society, vol. 109(456), pages 381-389, June.
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    16. Désirée Teobaldelli, 2011. "Federalism and the shadow economy," Public Choice, Springer, vol. 146(3), pages 269-289, March.
    17. Andreas Buehn & Stefan Eichler, 2009. "Smuggling Illegal versus Legal Goods across the U.S.-Mexico Border: A Structural Equations Model Approach," Southern Economic Journal, John Wiley & Sons, vol. 76(2), pages 328-350, October.
    18. Kirchler,Erich, 2007. "The Economic Psychology of Tax Behaviour," Cambridge Books, Cambridge University Press, number 9780521876742.
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    24. 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.
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    More about this item

    Keywords

    Shadow economy; tax morale; tax pressure; state regulation; undeclared work;
    All these keywords.

    JEL classification:

    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation

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