The Unofficial Economy in Transition

Abstract

The Unofficial Economy in TransitionTHE ECONOMIES of eastern Europe and the former Soviet Union (FSU) escaped communism with a heavy burden. When central planning collapsed, they continued to suffer from widespread political control of economic activity. Such politicization had to be reduced significantly for small business formation and growth to begin. In recent years, some of these countries have succeeded much better than others in replacing political control with functioning market institutions. As this paper shows, they are also the countries that have had the healthiest public finances, the smallest unofficial economies, and the best records of growth.The politicization of economic life can usefully be thought of as the exercise by politicians of control rights over business. ' Such rights may include regulatory powers over privatized and private firms, the ability to regulate and restrict entry, control over the use of land and real estate that private businesses occupy, the determination and collection of taxes For helpful comments, we thank

Shadow economies around the world: what do we really know?

“…But since most of these costs can be shifted on the employees, these costs provide another incentive to work in the shadow economy, where they can be avoided. Empirical evidence supporting the model of Johnson, Kaufmann, and Shleifer (1997), which predicts, inter alia, that countries with more general regulation of their economies tend to have a higher share of the unofficial economy in total GDP, is found in their empirical analysis. A one-point increase of the regulation index (ranging from 1 to 5, with 5 = the most regulation in a country), ceteris paribus, is associated with an 8.1 percentage point increase in the share of the shadow economy, when controlled for GDP per capita (Johnson et.…”

“…46) This method was used earlier by Lizzeri (1979), Del Boca and Forte (1982), and then was used much later by Portes (1996), Kaufmann and Kaliberda (1996), Johnson, Kaufmann and Shleifer (1997). For a critique see Lackó (1998).…”

“…47) Johnson, Kaufmann and Shleifer (1997) make an attempt to adjust for changes in the elasticity of electricity/GDP.…”

“…Various topics, on how to measure it, its causes, its effect on the official economy are analyzed. See for example, survey type publications by Frey and Pommerehne (1984); Thomas (1992); Loayza (1996); Pozo (1996); Lippert and Walker (1997); Schneider (1994aSchneider ( , 1994bSchneider ( , 1997Schneider ( , 1998a; Johnson, Kaufmann, and Shleifer (1997), Johnson, Kaufmann and Zoido-Lobatón (1998a); Belev (2003); Gerxhani (2003) and Pedersen (2003). For an overall survey of the global evidence of the size of the shadow economy see Enste (2000, 2002), and Alm, Martinez and Schneider (2004).…”

Entrepreneurial education and internationalisation of firms in transition economies: a conceptual framework from the case of Croatia

“…Such economic activities, mostly related to smuggling, continued to grow during the war and during the first phases of transition, making the fortunes of many (Dana, 1998;Ramadani and Dana, 2013). Furthermore, this fact has contributed to shaping the post war economy in many transition economies with a high level of distrust toward institutions (Johnson et al, 1997;Feige and Ott, 1998;Johnson et al, 2000;Smallbone and Welter, 2006).…”