Regional Estimates of the Shadow Economy in Europe

Abstract

The aim of the paper is to estimate the extent of the shadow economy in the regions of the European Union. For this purpose the multiple-indicators multiple-causes approach combined with elements of spatial econometrics is implemented. The analysis shows that the shadow economy is most extensive in Eastern and Southern Europe, confirming results from previous literature. Within countries, the poorest regions tend to exhibit the highest shadow economy quotas. The smallest extent of shadow activities is obtained for the Netherlands and the United Kingdom, while in Poland the shadow economy is most extensive.Shadow economy, European Union, MIMIC modelling, spatial effects,

Equilibrium implications of fiscal policy with tax evasion: A long run perspective

“…They also find that an increased burden of taxation (direct and indirect ones), combined with (labor market) regulations and the quality of public goods and services as well as the state of the 'official' economy are the driving forces of the shadow economy. In an other recent contribution Tafenau et al (2010) estimate the extent of the shadow economy in the regions of the European Union, using the multiple-indicators multiple-causes approach combined with elements of spatial econometrics is implemented. The analysis shows that the shadow economy is most extensive in Eastern and Southern Europe.…”

“…Avoiding tax payments is the very reason for the existence of tax evasion, and this may have an important impact on the effectiveness of fiscal policy to reach the desired objectives. More recently the estimates by Schneider, Buehn, and Montenegro (2010) and by Tafenau, Herwartz, and Schneider (2010) suggest that the size of the informal sector is significant and growing over time (more details are presented in Section 2).…”

Determinants of the Shadow Economy in the Czech Regions: A Region-Level Study

“…Chaudhuri et al (2006), Tafenau et al (2010), Buehn (2011), or Wiseman (2013). In these studies, the standard approach to estimate size of the shadow economy is the MIMIC model.…”

Reflections on the Meaning and Measurement of Unobserved Economies: What Do We Really Know About the 'Shadow Economy'?

“…(2003) 102 Real GDP -1 394 Currency Holdings 1 Schneider (2005) 604 Annual Rate of GDP Change -1 Schneider (2005) 605 Average Working time (per week) -1 Schneider (2007) 11 Annual Rate of GDP -1 Schneider (2007) 12 Average working time -1 Buehn & Schneider (2008) 15 GDP 1 Buehn & Schneider (2008) 15 GDP - 1 Herwartz, Schneider & Tafenau (2015) 1580 GDP per capita -1 Schneider & Buehn (2009) 8 Growth Rate GDP - 1 Schneider & Buehn (2009) 10 GDP per capita -1 Schneider & Buehn (2009) 11 GDP per capita -1 Tafenau, Herwartz & Schneider (2010) 632 GPD per capita - 1 Feld & Schneider (2010) 130 Average working time(per week) -1 Schneider (2010) 450 Annual Rate of GDP 1 Schneider. Buehn, & Montenegro (2010) 449 Currency 1 * The various models also include different additional indicator variables, some of which occasionally appear as causal variables, thereby violating the MIMIC specification requirement that the indicators are conditionally independent of the causes, given the latent variable.…”