The Shadow Economy in International Comparison: Options for Economic Policy Derived from an OECD Panel Analysis

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractBuilding on new behavioral and institutional theories, using a data set of about 450 variables and augmenting the Sala-i-Martin definition of robustness, we find evidence in support of the hypothesis that the standard causes of the shadow economy (SE), taxes, the administrative burden and labor market regulations, are not per se crucial in determining the size of the SE. There are many other influences with a consistently estimated plausible sign and whose quantitative impact appears to be even larger and more significant than that of the standard causes. Many of the robust influences emanate from relatively new theories such as elements of direct democracy, social interaction effects, moral aspects, and happiness, and from the institutional literature on the relative importance of specific institutions for economic performance. Most of them can well be influenced by governments. Hence, in order to reduce the SE and tax avoidance, a coordinated international strategy of using incentives to work, save, and invest in the official economy, including the behavior of the government, could be more successful than a strategy built on more government control, increased punishment and less freedom. The latter strategy would contradict the new theories and our evidence but appears to have been adopted by some OECD countries. Simulations of the size of the SE demonstrate their sensitivity to required velocity assumptions and show that previous estimates, including those of the so-called Mimic model, appear to be based on the very high end of possible velocity assumptions. Relatively low velocity assumptions can be defended much better and yield macro estimates of the SE consistent with the micro evidence. Finally, for the first time we separate the relatively large "criminal" shadow activity from the "non-criminal" one.JEL Code: C23, E61, H26, O17

Currency demand and MIMIC models: towards a structured hybrid method of measuring the shadow economy

“…Yet, to our knowledge, these variables are not included in most of the macroeconometric, shadow-economy-related currency demand analyses. Even Thiessen (2010), who tests about 450 determinants of cash demand, does not include these important variables in the model. In our approach, among other sources of electronic payment data, we use a new panel data set from the recently released Global Payment Systems Survey (World Bank 2016).…”

An empirical examination of the determinants of the shadow economy

“…Using the massive database gathered by Thiessen (2010), the main contribution of our paper consists of selecting the determinants of the size of the shadow economy from a set of variables suggested in the theoretical and empirical literature as potential causes and influences. We employ a purely statistical methodology which automatically selects the factors in the econometric model in a process guided only by data.…”

A simple way to capture currency abroad

“…-The overall cashless payments behaviour of nonbanks relative to cash transactions in the two countries is not too dissimilar (Bank for International Settlements, 2009). -The size of the shadow economy, in which most transactions are settled in cash, is similar in both countries (Feld and Schneider, 2010;Thießen, 2010). -There should not be a major difference in hoarding behaviour in the two countries (see, for instance, the estimates in Boeschoten, 1992, Chapter 4).…”