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Does taking the shadow economy into account matter when measuring aggregate efficiency?

Listed author(s):
  • Pierre-Guillaume Méon
  • Laurent Weill
  • Friedrich Schneider

We analyze how adding the shadow economy to official output figures affects estimated technical efficiency at the country level. We find that this only slightly affects the ranking of efficiency scores, but increases average efficiency in a sample of 87 to 97 countries, both developed and developing. Our results are robust to the functional form of the production technology and the adjustment of labour to account for years of schooling.

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Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/103502.

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Date of creation: Jul 2011
Publication status: Published in: Applied economics (2011) v.43 n° 18,p.2303-2311
Handle: RePEc:ulb:ulbeco:2013/103502
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Web page: http://difusion.ulb.ac.be

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  1. David E. A. Giles, 1999. "Modelling the hidden economy and the tax-gap in New Zealand," Empirical Economics, Springer, vol. 24(4), pages 621-640.
  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.
  3. 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.
  4. Giles, David E A, 1997. "Testing for Asymmetry in the Measured and Underground Business Cycles in New Zealand," The Economic Record, The Economic Society of Australia, vol. 73(222), pages 225-232, September.
  5. Giles, David E A, 1999. "Measuring the Hidden Economy: Implications for Econometric Modelling," Economic Journal, Royal Economic Society, vol. 109(456), pages 370-380, June.
  6. Tanzi, Vito, 1999. "Uses and Abuses of Estimates of the Underground Economy," Economic Journal, Royal Economic Society, vol. 109(456), pages 338-347, June.
  7. Prescott, Edward C, 1998. "Needed: A Theory of Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 525-551, August.
  8. Christopher Bajada & Friedrich Schneider, 2005. "The Shadow Economies Of The Asia-Pacific," Pacific Economic Review, Wiley Blackwell, vol. 10(3), pages 379-401, October.
  9. Pierre-Guillaume Méon & Laurent Weill, 2004. "Does corruption hamper efficiency? A frontier analysis," ULB Institutional Repository 2013/8382, ULB -- Universite Libre de Bruxelles.
  10. Kneller, Richard & Andrew Stevens, Philip, 2003. "The specification of the aggregate production function in the presence of inefficiency," Economics Letters, Elsevier, vol. 81(2), pages 223-226, November.
  11. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, Oxford University Press, vol. 114(1), pages 83-116.
  12. Lee C. Adkins & Ronald L. Moomaw & Andreas Savvides, 2002. "Institutions, Freedom, and Technical Efficiency," Southern Economic Journal, Southern Economic Association, vol. 69(1), pages 92-108, July.
  13. Pierre-Guillaume Méon & Laurent Weill, 2004. "Does better governance foster efficiency? An aggregate frontier analysis," Economics of Governance, Springer, vol. 6(1), pages 75-90, January.
  14. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobatón, Pablo, 1998. "Corruption, public finances and the unofficial economy," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34372, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
  15. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
  16. 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.
  17. Trevor Breusch, 2005. "Estimating the Underground Economy using MIMIC Models," Econometrics 0507003, EconWPA, revised 15 Dec 2005.
  18. Susan M. Collins & Barry P. Bosworth, 1996. "Economic Growth in East Asia: Accumulation versus Assimilation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 27(2), pages 135-204.
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