Constitutional Political Economy

, Volume 24, Issue 4, pp 310–335 | Cite as

US shadow economies: a state-level study

  • Travis WisemanEmail author
Original Paper


Recent studies of shadow economies focus primarily on cross-country comparisons. Few have examined regional or state-level variations in underground economic activity. This paper presents estimates of the shadow economy for 50 US states over the period 1997–2008. Results suggest that tax and social welfare burdens, labor market regulations, and intensity of regulation enforcement are important determinants of the underground economy. Among the states, Delaware, on average, maintains the smallest shadow economy at 7.28 % of GDP; Oregon, on average, has the second smallest shadow economy at 7.41 % of GDP; followed by Colorado, averaging 7.52 % of GDP, rounding out the three smallest shadow economies in the US West Virginia and Mississippi, on average, have the largest shadow economies in the US as a percent of GDP (9.32 and 9.54 %, respectively).


Shadow economy MIMIC model Latent variable Tax burden Regulation US states 

JEL Classification

D78 H11 H2 K42 O17 O51 



I gratefully acknowledge financial support from the Charles G. Koch Foundation, and the European Social Fund’s Doctoral Studies and Internationalisation Programme DoRa. Additionally, I would like to thank Andrew Young for his insightful comments and suggestions, many of which influenced my thinking during the construction of this paper.


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Copyright information

© Springer Science+Business Media New York 2013

Authors and Affiliations

  1. 1.Department of Finance and Economics, College of BusinessMississippi State UniversityMississippi StateUSA

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