Estimating the size of the shadow economy in Spain: a structural model with latent variables

Abstract

There has recently been a revival of international interest in measuring the size of the shadow economy. The current study adopts an approach to the Spanish case that is based on the theory of unobservable variables. This methodology involves the estimation of structural models (MIMIC) which analyses a set of causes of the shadow economy while simultaneously taking into account its influence upon a series of indicators. The proposed model permits the determination of a relative evolution over time of the size of the shadow economy, which requires the calibration of the model with an exogenous estimation in order to obtain real values. The exogenous estimation employed is that obtained by a monetary method based on a money demand function. The results show a considerable shadow economy, measuring between 8 and 18.8% of GDP in the period 1976-2002, and demonstrate that the shadow economy is significantly influenced by the tax burden, the degree of regulation and unit labour costs. A positive correlation is obtained between GDP, money demand and the level of the shadow economy.

Labor Tax Avoidance and Its Determinants: The Case of Mafia Firms in Italy

“…Moreover, their results confirm that unemployment, the fiscal burden and self-employment are the main causes of the shadow economy in these countries, and confirm that an inverse relationship exists between the official GDP growth rate and that of the unofficial economy. Finally, applying the same MIMIC method to the Spanish case, Alañón and Gómez-Antonio (2005) find a considerable shadow economy, measuring between 8 and 18.8% of GDP in the period , and demonstrate that the shadow economy is significantly influenced by the tax burden, the degree of regulation and unit labor costs. Some indirect methods have been criticized because of the questionable basic assumptions and the unreliable macroeconomic estimates on which they rely (Schneider and Enste, 2000;Ahumada et al, 2007;Feige and Urban, 2008).…”

Smuggling around the world: evidence from a structural equation model

“…2 Secondly, we use the MIMIC estimation results to rank the countries according to the extent of smuggling in the economy and compute an index 1 The literature mostly deals with theoretical aspects of the effects of smuggling on social welfare and the economy (see e.g., Bhagwati and Hansen, 1973;Pitt, 1981;Martin and Panagariya, 1984;and Thursby et al, 1991). 2 MIMIC approaches have been applied to estimate the development of the shadow economy (see, e.g., Dell'Anno and Schneider (2003), Schneider (2005), Alañón and Gómez-Antonio (2005), Dell´Anno and Solomon, and ) and to corruption (Dreher et al, 2007).…”

The Non‐Observed Economy in Portugal: The monetary model and the MIMIC model

“…It also requires a calibration method after the incorporation of an exogenous estimate. We decided to adopt the method followed by Alañón and Gómez‐Antonio (), starting from the estimation of the structural equation .…”