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The relationship between GDP and the size of the informal economy: Empirical evidence for Spain

  • Duarte, Pablo

The empirical evidence on the linkage of the informal economy and GDP is ambiguous. It depends on the method used to estimate the size of the informal economy. I propose a common factor of four different approximations of the size of the informal economy as an alternative. Using Spain as an example I find that GDP Granger-causes informality, but not the other way around. I also find that positive GDP shocks induce positive and statistically significant responses of the size of the informal economy.

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Paper provided by University of Leipzig, Faculty of Economics and Management Science in its series Working Papers with number 127.

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Date of creation: 2014
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Handle: RePEc:zbw:leiwps:127
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  1. Maurizio Bovi & Roberto Dell’Anno, 2010. "The changing nature of the OECD shadow economy," Journal of Evolutionary Economics, Springer, vol. 20(1), pages 19-48, January.
  2. Friedrich Schneider, 2004. "Shadow Economies around the World: What do we really know?," IAW Discussion Papers 16, Institut für Angewandte Wirtschaftsforschung (IAW).
  3. Serdar Birinci, 2013. "Trade openness, growth, and informality: Panel VAR evidence from OECD economies," Economics Bulletin, AccessEcon, vol. 33(1), pages 694-705.
  4. Feige, Edgar L. & Urban, Ivica, 2008. "Measuring underground (unobserved, non-observed, unrecorded) economies in transition countries: Can we trust GDP?," Journal of Comparative Economics, Elsevier, vol. 36(2), pages 287-306, June.
  5. Rafael La Porta & Andrei Shleifer, 2008. "The Unofficial Economy and Economic Development," NBER Working Papers 14520, National Bureau of Economic Research, Inc.
  6. Christopher Bajada & Friedrich Schneider, 2005. "The Shadow Economies Of The Asia-Pacific," Pacific Economic Review, Wiley Blackwell, vol. 10(3), pages 379-401, October.
  7. Eilat, Yair & Zinnes, Clifford, 2002. "The Shadow Economy in Transition Countries: Friend or Foe? A Policy Perspective," World Development, Elsevier, vol. 30(7), pages 1233-1254, July.
  8. 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.
  9. Ceyhun Elgin & Oguz Oztunali, 2012. "Shadow Economies around the World: Model Based Estimates," Working Papers 2012/05, Bogazici University, Department of Economics.
  10. Lars P. Feld & Friedrich Schneider, 2010. "Survey on the Shadow Economy and Undeclared Earnings in OECD Countries," German Economic Review, Verein für Socialpolitik, vol. 11, pages 109-149, 05.
  11. Friedrich Schneider & Andreas Buehn & Claudio Montenegro, 2010. "New Estimates for the Shadow Economies all over the World," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 443-461.
  12. Giles, David E..A. & Tedds, Lindsay M. & Werkneh, Gugsa, 2002. "The Canadian Underground and Measured Economies: Granger Causality Results," MPRA Paper 39786, University Library of Munich, Germany.
  13. Roberto Dell'Anno, 2008. "What is the relationship between Unofficial and Official Economy? An analysis in Latin American Countries," Quaderni DSEMS 23-2008, Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia.
  14. Diego Martinez-Lopez, 2013. "The underreporting of income by self-employed workers in Spain," SERIEs, Spanish Economic Association, vol. 4(4), pages 353-371, November.
  15. Jörg Breitung & Sandra Eickmeier, 2006. "Dynamic factor models," AStA Advances in Statistical Analysis, Springer, vol. 90(1), pages 27-42, March.
  16. Pablo Duarte & Bernd Süssmuth, 2014. "Robust Implementation of a Parsimonious Dynamic Factor Model to Nowcast GDP," CESifo Working Paper Series 4574, CESifo Group Munich.
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