Abstract
The currency approach assumes black economies to entail larger cash volumes than those needed for transactions in the official economy. Estimates of this hypothesis use e.g. overall cash data. But, for the case of Germany, the growing DM cash amounts in circulation did not only accompany transactions in the national economy, they also disseminated in hoards and in international uses. A series of adjusted cash figures is derived which shows the maximum dimension of national cash uses either for official or black activities. The adjusted cash figures in general grew less fast than overall cash, private consumption, GDP or M1 respectively. They even diminished relative to sales figures which often are accused of being a basis for black activities. This enhances the presumption that, contrary to some contentions in the literature, black activities during the times of the DM-regime played a minor or even decreasing role in Germany.
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Notes
Such contentions are to be found in the research of Schneider et al. This even holds when Schneider deals with the overall shadow economies since in his analyses black economies always constitute the main influence for the development of shadow economies. See e.g. Enste and Schneider (2007), p. 265 f.
See the survey article of Feld and Schneider (2010)
See Feld and Schneider (2010), Table 13 on p. 134.
Döhrn (1990).
Bundesrechnungshof (Federal Audit Office) (2007).
The Institut für angewandte Wirtschaftsforschung (2008) published a press release, co-authored by Schneider, which refers to an alleged volume of black activities of 347 billion Euro.
The estimates based on the currency approach always rely on reference periods or reference years without black economies. Nevertheless the currency approach, in general, uses this questionable procedure without sufficient critical reservation marks. See e.g. Kirchgässner (1983), p. 200. The importance and consequences of initial conditions are discussed in Ahumada et al. (2008)
See especially Seitz (1995), p. 3, fn. 3 and p. 52. There the process of provision of cash from the part of the Bundesbank is characterised as following completely the demand. Cash needs, in addition to the use for national transactions, thus do not entail variations of the interest rates. The supply of cash can rather be assumed as being indefinitely elastic.
See Seitz (1995) passim.
Cagan (1958).
An example of such transformations which are not based on theory or evidence can be found in an estimate of Kirchgässner for the cash ratio C/M2. The influence of taxes is decisive or especially significant when lags of two periods are used. See Kirchgässner (1983), p. 203. For those interested in black activities higher tax burdens, however, are immediately known (or even before the tax law is passed). People engaged in black activities simply do not need to wait 2 years in order to recognize the new tax rates and their influence on the prices of services. Normally 2 years after a new tax law with higher tax rates completely new or additional influences on economic behaviour materialize.
See Kirchgässner (1983), pages 203 and 206.
See Schneider and Enste (2000). On page 95, however, there is a short hint with the argument that for the case of the United States the currency method, based only on the total amount of cash, could be distorting since the use of US-Dollars in foreign countries is disregarded.
See again the discussion of different assumptions about income velocities in Breusch (2005), p. 400–401.
See Deutsche Bundesbank: Geschäftsberichte. This reference allows the calculation of ratios of banknotes and coins relative to cash.
See Deutsche Bundesbank: Geschäftsbericht 2002, p. 125, own calculations.
Here the period under consideration here is shorter than those before. The reason is that official data from the Deutsche Bundesbank are only available for the years beginning 1968.
See Seitz (1995), p. 38 and 43.
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Acknowledgments
The author gratefully acknowledges the helpful discussion of an earlier draft by participants of the international conference “Shadow Economy––Tax Evasion and Social Norms” in Münster, Germany, 2009. I especially thank an anonymous referee for most valuable, constructive comments.
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Graf, G. Some stylised facts about cash and black economies in Germany. Eur J Law Econ 32, 51–67 (2011). https://doi.org/10.1007/s10657-011-9217-z
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DOI: https://doi.org/10.1007/s10657-011-9217-z