The Unofficial Economy and the Business Cycle: A Test for Theories
The shadow economy is an extensive phenomenon worldwide. It poses several questions, the consequences on fluctuations in economic activity being among the major ones. Based on official data, this paper establishes a set of cyclical properties of macroeconomic aggregates and studies how these vary across countries with the size of the unofficial sector. Through comparisons with the existing literature on business cycles in economies featuring underground activities, the obtained ‘stylized facts’ are used to test the relevance of theoretical predictions on the influence of the shadow economy. Using this procedure allows to confirm that the evidence is not entirely of the sort suggested in business cycle models. In particular, some important macro aggregates and cyclical properties have been neglected in the analysis altogether, while others have been paid too much attention for no apparent empirical reason. Some possible avenues for future research can be drawn from this exercise.
|Date of creation:||Jul 2010|
|Date of revision:|
|Publication status:||Forthcoming in International Economic Journal|
|Note:||I would like to thank my adviser, Christian Zimmermann, for his comments and motivation. This paper has benefited from suggestions from seminar participants at the University of Connecticut and at the International Workshop Shadow Economy, Tax Policy, and Labour Markets in International Comparison: Options for Economic Policy, University of Potsdam, April 15-16, 2010. All errors are entirely mine. Financial assistance from Universidad de Antioquia is gratefully acknowledged.|
|Contact details of provider:|| Postal: University of Connecticut 365 Fairfield Way, Unit 1063 Storrs, CT 06269-1063|
Phone: (860) 486-4889
Fax: (860) 486-4463
Web page: http://www.econ.uconn.edu/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Yoke-Kee Eng & Chin-Yoong Wong, 2008. "A short note on business cycles of underground output: are they asymmetric?," Economics Bulletin, AccessEcon, vol. 3(58), pages 1-10.
- Ellen R. McGrattan & Richard Rogerson & Randall Wright, 1995.
"An equilibrium model of the business cycle with household production and fiscal policy,"
191, Federal Reserve Bank of Minneapolis.
- McGrattan, Ellen R & Rogerson, Richard & Wright, Randall, 1997. "An Equilibrium Model of the Business Cycle with Household Production and Fiscal Policy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 267-90, May.
- Talvi, Ernesto & Vegh, Carlos A., 2005. "Tax base variability and procyclical fiscal policy in developing countries," Journal of Development Economics, Elsevier, vol. 78(1), pages 156-190, October.
- Douglas Gollin, 2002.
"Getting Income Shares Right,"
Journal of Political Economy,
University of Chicago Press, vol. 110(2), pages 458-474, April.
- repec:ebl:ecbull:v:3:y:2008:i:58:p:1-10 is not listed on IDEAS
- Fiorito, Riccardo & Kollintzas, Tryphon, 1994.
"Stylized facts of business cycles in the G7 from a real business cycles perspective,"
European Economic Review,
Elsevier, vol. 38(2), pages 235-269, February.
- Fiorito, Riccardo & Kollintzas, Tryphon, 1992. "Stylized Facts of Business Cycles in the G7 from a Real Business Cycles Perspective," CEPR Discussion Papers 681, C.E.P.R. Discussion Papers.
- David E. A. Giles, 1998.
"Measuring The Hidden Economy: Implications for Econometric Modelling,"
Econometrics Working Papers
9809, Department of Economics, University of Victoria.
- Giles, David E A, 1999. "Measuring the Hidden Economy: Implications for Econometric Modelling," Economic Journal, Royal Economic Society, vol. 109(456), pages F370-80, June.
- Juan Carlos Conesa Roca & Carlos Díaz Moreno & José Enrique Galdón Sánchez, 2001.
"Underground economy and aggregate fluctuations,"
Spanish Economic Review,
Springer, vol. 3(1), pages 41-53.
- Rand, John & Tarp, Finn, 2002.
"Business Cycles in Developing Countries: Are They Different?,"
Elsevier, vol. 30(12), pages 2071-2088, December.
- Rand, John & Tarp, Finn, 2001. "Business Cycles in Developing Countries: Are They Different?," MPRA Paper 62445, University Library of Munich, Germany.
- Fiess, Norbert M. & Fugazza, Marco & Maloney, William F., 2010. "Informal self-employment and macroeconomic fluctuations," Journal of Development Economics, Elsevier, vol. 91(2), pages 211-226, March.
- Conesa, Juan Carlos & Diaz-Moreno, Carlos & Galdon-Sanchez, Jose Enrique, 2002. "Explaining cross-country differences in participation rates and aggregate fluctuations," Journal of Economic Dynamics and Control, Elsevier, vol. 26(2), pages 333-345, February.
- Bosch, Mariano & Maloney, William F., 2008.
"Cyclical Movements in Unemployment and Informality in Developing Countries,"
IZA Discussion Papers
3514, Institute for the Study of Labor (IZA).
- Bosch, Mariano & Maloney, William, 2008. "Cyclical movements in unemployment and informality in developing countries," Policy Research Working Paper Series 4648, The World Bank.
- Francesco Busato & Bruno Chiarini, 2004. "Market and underground activities in a two-sector dynamic equilibrium model," Economic Theory, Springer, vol. 23(4), pages 831-861, May.
- Agenor, Pierre-Richard & McDermott, C John & Prasad, Eswar S, 2000.
"Macroeconomic Fluctuations in Developing Countries: Some Stylized Facts,"
World Bank Economic Review,
World Bank Group, vol. 14(2), pages 251-85, May.
- C. John McDermott & Eswar Prasad & Pierre-Richard AgÃ©nor, 1999. "Macroeconomic Fluctuations in Developing Countries: Some Stylized Facts," IMF Working Papers 99/35, International Monetary Fund.
- Christopher Bajada, 2003. "Business Cycle Properties of the Legitimate and Underground Economy in Australia," The Economic Record, The Economic Society of Australia, vol. 79(247), pages 397-411, December.
- Fortin, Bernard & Marceau, Nicolas & Savard, Luc, 1997. "Taxation, wage controls and the informal sector," Journal of Public Economics, Elsevier, vol. 66(2), pages 293-312, November.
When requesting a correction, please mention this item's handle: RePEc:uct:uconnp:2010-17. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mark McConnel)
If references are entirely missing, you can add them using this form.