Shadow economy: A comprehensive concept and the interpretation of its size

Abstract

There is lack of standard understanding or definition of the shadow economy. The aim of this mainly theoretical paper is twofold. First it brings together the concepts of the available academic research and official statistics. Second it discusses in what sense the calculated shadow economy measures indicate an exceeding amount over the official Gross Domestic Product (GDP). Indicators usually express shadow economy size as a proportion of GDP, so it is of most importance to elucidate the true meaning of these numbers. Official GDP already includes certain part of the shadow activities. Empirical calculations illustrate the weight of overlap.

Impacts of financial development and green trade on the shadow economy: An insight of eagle countries using Bayesian approaches

“…Encompassing concealed activities that escape public authorities’ scrutiny because of regularity, monetary transactions, or institutional reasons, the shadow economy diminishes the tax base, leading to a reduction in the country’s tax revenue and subsequently exerting adverse effects on economic growth [ 4 , 5 ]. These covert transactions, not factored into the official Gross Domestic Product (GDP), result in a misrepresentation of macroeconomic indicators crucial for the country’s economic policymaking [ 6 – 8 ]. Researchers have investigated factors affecting the activities of the shadow economy, for example, foreign direct investment [ 9 , 10 ]; institutional quality [ 11 – 14 ]; and globalization [ 15 – 17 ].…”