Shadow economies around the world: novel insights, accepted knowledge, and new estimates
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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.
KeywordsShadow economies Quality of institutions Enforcement MIMIC Model
JEL ClassificationO17 O5 D78 H11 H26
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