IDEAS home Printed from
   My bibliography  Save this paper

Integrating the unofficial economy into the dynamics of post-socialist economies : a framework of analysis and evidence


  • Kaufmann, Daniel
  • Kaliberda, Aleksander


Over a third of economic activity in theformer Soviet countries was estimated to occur in the unofficial economy by the mid-1990s; in Central and Eastern Europe, the average is close to one-quarter. Intraregional variations are great: in some countries 10 to 15 percent of economic activity is unofficial, and in some more than half of it. The growth of unofficial activity in most post-socialist countries, and its mitigating effect on the decline in official output during the early stages of the transition, have been marked. In this paper, the authors challenge the conventional view of how post-socialist economies function by incorporating the unofficial economy into an analysis of the full economy. Then they advance a simple framework for understanding the evolution of the unofficial economy, and the links between both economies, highlighting the main characteristics of"officialdom,"contrasting conventional notions of"informal"or"shadow"economies, and focusing on what determines the decision to cross over from one segment to another. The initial empirical results seem to support hypothetical explanations of what determines the dynamics of the unofficial economy. The authors emphasize the speedy liberalization of markets, macro stability, and a stable and moderate tax regime. Although widespread, most"unofficialdom"in the region is found to be relatively shallow--subject to reversal by appropriate economic policies. The framework and evidence presented here have implications for measurement, forecasting, and policymaking--calling for even faster liberalization and privatization than already advocated. And the lessons in social protection and taxation policy differ from conventional advice.

Suggested Citation

  • Kaufmann, Daniel & Kaliberda, Aleksander, 1996. "Integrating the unofficial economy into the dynamics of post-socialist economies : a framework of analysis and evidence," Policy Research Working Paper Series 1691, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1691

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Freund, Caroline L. & Wallich, Christine I., 1995. "Raising household energy prices in Poland : who gains? who loses?," Policy Research Working Paper Series 1495, The World Bank.
    2. Gray, D., 1995. "Reforming the Energy Sector in Transition Economies. Selected Experience and Lessons," World Bank - Discussion Papers 296, World Bank.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Simon Johnson & Daniel Kaufman & Andrei Shleifer, 1997. "The Unofficial Economy in Transition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 159-240.
    2. Mr. Sanjeev Gupta & Mr. Benedict J. Clements & Mr. Kevin Fletcher & Ms. Gabriela Inchauste, 2002. "Issues in Domestic Petroleum Pricing in Oil-Producing Countries," IMF Working Papers 2002/140, International Monetary Fund.
    3. Stefan Buzar, 2007. "When Homes Become Prisons: The Relational Spaces of Postsocialist Energy Poverty," Environment and Planning A, , vol. 39(8), pages 1908-1925, August.
    4. Nepal, Rabindra & Jamasb, Tooraj, 2012. "Reforming the power sector in transition: Do institutions matter?," Energy Economics, Elsevier, vol. 34(5), pages 1675-1682.
    5. Anex, Robert P., 2002. "Restructuring and privatizing electricity industries in the commonwealth of independent states," Energy Policy, Elsevier, vol. 30(5), pages 397-408, April.
    6. Kaiser, Mark J., 2000. "Pareto-optimal electricity tariff rates in the Republic of Armenia," Energy Economics, Elsevier, vol. 22(4), pages 463-495, August.
    7. Ulrich Thießen, 1997. "Schattenwirtschaft in Osteuropa: das Beispiel der Ukraine," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 64(18), pages 334-340.
    8. Gros, Daniel & Suhrcke, Marc, 2000. "Ten Years After: What Is Special about Transition Countries?," Discussion Paper Series 26236, Hamburg Institute of International Economics.
    9. Jon Stern & Junior R. Davis, 1998. "Economic reform of the electricity industries of Central and Eastern Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 6(2), pages 427-460, November.
    10. Margarita M. Balmaceda, 2002. "EU Energy Policy and Future European Energy Markets: Consequences for the Central and East European States," MZES Working Papers 42, MZES.
    11. Saska Petrova & Michael Gentile & Ilkka Henrik Mäkinen & Stefan Bouzarovski, 2013. "Perceptions of Thermal Comfort and Housing Quality: Exploring the Microgeographies of Energy Poverty in Stakhanov, Ukraine," Environment and Planning A, , vol. 45(5), pages 1240-1257, May.
    12. Matteo Fiorini & Bernard Hoekman & Clément Malgouyres, 2018. "Services policy reform and manufacturing employment: Evidence from transition economies," The World Economy, Wiley Blackwell, vol. 41(9), pages 2320-2348, September.
    13. Nadeem Ul Haque & Faheem Jehangir Khan (ed.), 2022. "RASTA Local Research, Local Solutions: Energy Issues, Volume I," PIDE Books, Pakistan Institute of Development Economics, number 2022:11, December.
    14. Singh, Anoop, 2006. "Power sector reform in India: current issues and prospects," Energy Policy, Elsevier, vol. 34(16), pages 2480-2490, November.
    15. Julian Lampietti, 2004. "Power's Promise : Electricity Reforms in Eastern Europe and Central Asia," World Bank Publications - Books, The World Bank Group, number 14936, December.
    16. Hallegatte, Stephane & Heal, Geoffrey & Fay, Marianne & Treguer, David, 2011. "From growth to green growth -- a framework," Policy Research Working Paper Series 5872, The World Bank.
    17. Freinkman, Lev & Haney, Michael, 1997. "What affects the Russian regional governments'propensity to subsidize?," Policy Research Working Paper Series 1818, The World Bank.
    18. Stefan Bouzarovski, 2014. "Energy poverty in the European Union: landscapes of vulnerability," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 3(3), pages 276-289, May.


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:1691. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.