Any Link between Unofficial Economy and Official Economy? An Empirical Evidence from the ASEAN

Abstract

This purpose of this study is to examine a possible link between unofficial economy and official economy for the ASEAN from 1996 to 2013. The unofficial economy is technically unobservable. As such, the MIMIC approach, which will estimate the unobservable variable using different observable variables, is utilized in this study. The findings from this study indicate that when the official economy is proxied by the GDP or the GDP per capita, the unofficial economy negatively contributes to the official economy. The effect from the unofficial economy to the official economy is more significant to the GDP than to the GDP per capita. We argue that it may be the time to move away from the conventional approach adopted by the governments in the ASEAN in controlling the unofficial economy in the forms of punishment and education. A more appropriate approach to control a growth of the unofficial economy is to adopt a more comprehensive and systematic review of tax and social security contributions burdens; regulations and others which are well evidenced and documented in the literature of the shadow economy.

Estimating the Size of the Shadow Economy in Nine MENA Countries during the Period 2000 to 2017 Using the MIMIC Model

“…The shadow economy is a global issue and it is also known as; unofficial economy, informal economy, grey economy, hidden economy, parallel economy, underground economy, cash economy or the black economy, [10]. The presence of the shadow economy is obviously found in almost all countries regardless of its stage of economic development and political regime, whereby the shadow economy is a clear fact that exists along with the official economy and tangible relation between them is revealed [11].…”

“…The official economy, as well as the social life in any country, is affected and influenced by the presence of the shadow economy, whereby the shadow economy leads to disrupting the labor market and results in misleading indicators such as; the unemployment rate and the labor force, and that may result in wrong governmental decisions in the form of increasing the tax base (Hassan and Schneider, 2016). It was revealed from some empirical studies that a reduction in the official economy may be accompanied with a rise in the shadow economy and vice versa [11].…”

The Determinants of Systematic Risk in Vietnam

“…To determine the impact of fiscal policies on systematic risk, different types of variables have been used in previous studies (Vo et al (2017), Lee and Hooy (2012), Nguyen et al (2019), Hamada (1971), Bowman (1979), Hill et al (1980), Milicher and Rush (1974), Ben-Zion and Shalit (1975), Mandelker and Rhee (1984), Pham et al (2017)).…”