Shadow economies around the world: novel insights, accepted knowledge, and new estimates

Abstract

This paper is a first attempt to study the impact of enforcement on the shadow economy. Using a MIMIC model, we find that a higher share of sub-national government employment and the aspiration of public employees to follow rules significantly deter shadow economic activities. Our results also confirm previous findings: Increased burdens of taxation and regulation as well as the state of the "official" economy are important determinants of the shadow economy. The estimated weighted average informality in 162 countries around the world, including developing, Eastern European, Central Asian, and high-income OECD countries, is 17.1% of "official" GDP.Keywords Shadow economies · Quality of institutions · Enforcement · MIMIC Model JEL Classification O17 · O5 · D78 · H11 · H26

Exploring the dark side of tax policy: an analysis of the interactions between fiscal illusion and the shadow economy

“…using the averages for the period 2000-2007 on the one hand and the estimates for the year 2006 on the other hand. Mourão (2008); *** Buehn and Schneider (2012a) On the one hand, an economy with a large shadow sector reduces the quality of institutions and is potentially characterized by low attitudes towards the state. Hence, policymakers are probably keen to apply several strategies limiting the size of the shadow economy.…”

“…However, Tanzi (1999) as well as Buehn and Schneider (2012a) argue that the effect of unemployment on the shadow economy is ambiguous, i.e., both a positive and negative sign may be observed in an empirical analysis. Buehn and Schneider's line of reasoning is as follows: income losses due to unemployment may reduce demand in both the shadow and official economies (income effect).…”

Tackling informal employment in developing and transition economies: a critical evaluation of the neo-liberal approach

“…From this modernisation perspective, therefore, the level of informal employment would naturally reduce as economies modernise and develop. If informal employment is rife in an economy, in consequence, this signals its 'backwardness ' and 'under-development'. Over the past few decades, however, it has been recognised that some 60% of the global workforce are engaged in informal employment (Jütting and Laiglesia, 2009) and that informal employment is therefore extensive, persistent and even expanding relative to formal employment in many countries and global regions (Buehn and Schneider, 2012;Dana, 2013;Feld and Schneider, 2010;ILO, 2012ILO, , 2013Jütting and Laiglesia, 2009;OECD, 2012;Rodgers and Williams, 2009;Schneider and Williams, 2013). The outcome has been to refute the view that there is a natural and inevitable trajectory towards modern formal economies and that informal employment is a residue from some pre-modern mode of production.…”

Explaining Cross-National Variations in the Prevalence and Character of Undeclared Employment in the European Union

“…It is now widely recognized that across the globe, undeclared employment is extensive and even growing relative to declared employment (Buehn and Schneider, 2012;ILO, 2011;Jütting and Laiglesia, 2009;mehrotra and Biggeri, 2007;OECD 2012;Schneider, 2008Schneider, , 2011. However, it is also recognized that undeclared employment is unevenly distributed across different global regions (ILO, 2011) and cross-nationally (Buehn and Schneider, 2012;Feld and Schneider, 2010;ILO, 2002;Schneider, 2011).…”

“…However, it is also recognized that undeclared employment is unevenly distributed across different global regions (ILO, 2011) and cross-nationally (Buehn and Schneider, 2012;Feld and Schneider, 2010;ILO, 2002;Schneider, 2011). Reviewing how this has been explained, three rival theorisations can be identified.…”