Abstract
The chapter presents estimations of the size of the shadow economies of Bangladesh, Cambodia, China, Indonesia, Japan, Laos, Malaysia, the Philippines, South Korea, Thailand and Vietnam over the period 2000–2014. According to my estimation the average size (over 2000–2014) of the shadow economy of Bangladesh is 33.7%, of Cambodia 45.4%, of China 12.0%, of Indonesia 29.0%, of Japan 9.2%, of Laos 27.5%, of Malaysia 28.9%, of the Philippines 32.6%, of South Korea 15.1%, of Thailand 39.0%, and of Vietnam 15.2%. I find that an increase in the burden of indirect taxation and the unemployment rate and less business freedom are the driving forces of the shadow economies of these eleven countries.
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Notes
- 1.
The Multiple Indicator Multiple Causes (MIMIC ) Approach is a latent estimation procedure for the size and development of a shadow economy. It is briefly explained in Sect. 3.3.1, entitled Econometric Methodology. The MIMIC method is based upon a statistical theory of unobserved variables, which considers the multiple causes and multiple indicators of the shadow economy to be measured. The MIMIC model uses multiple indicators and multiple causes in a structural equation model (SEM) with the latent variable shadow economy. The cause variables influence the shadow economy and the shadow economy activities are reflected in the indicator variables.
- 2.
This definition is used, for example, by Feige (1989, 1994), Schneider (2005, 2010, 2015), Feld and Schneider (2010), Schneider and Williams (2013), Buehn and Schneider (2012), Schneider et al. (2010) and Williams and Schneider (2016). Do-it-yourself activities are not included. For estimates of the shadow economy and the do-it-yourself activities for Germany , see Buehn et al. (2009).
- 3.
- 4.
- 5.
These indices are compiled by the Heritage Foundation, Washington D.C., various years. The control of corruption ranks between 0 (lowest no-corruption ) and 200 (highest possible corruption ) and the rule of law ranks between 0 (no rule of law) and 200 (best rule of law).
- 6.
Cash is the most popular and frequent means for paying people in the shadow economy. Cash does not leave any traces (the opposite of a cheque or an electronic transfer) and, due to this, cash is the most easy means of payment for shadow economy transactions. In most countries, cash is used for shadow economy transactions in up to 80% of the cases. If one were to abolish cash, the transaction costs for shadow economy activities would rise, but they would not diminish because the causes of why people work in the shadow economy would not diminish. If one were to abolish cash, the first simulations for European countries show that the shadow economy would be reduced by roughly 10%.
- 7.
- 8.
The pioneers of this approach are Frey and Weck-Hannemann (1984), who applied this approach to cross-section data from the 24 OECD countries for various years.
- 9.
The co-variance (cited from Wikipedia, the free encyclopedia, www.wikipedia.org, September 2016) is a measure of how much two random variables change together. If the greater value of one variable mainly corresponds with the greater value of the other variable, and the same holds for lesser values, i.e., the variables tend to show similar behaviour, the co-variance is positive. In the opposite case, when the greater values of one variable mainly correspond to the lesser values of the other, i.e., the variables tend to show the opposite behaviour, the co-variance is negative.
- 10.
These 11 Asian countries were chosen because I could compile a consistent data-set of the causal and indicator variables for them.
- 11.
As these two tax variables are highly correlated in equations 3 and 4, the direct tax variable is left out, as the direct tax burden variable is of minor importance in these countries.
- 12.
China is an extremely difficult case, due to the fact that China is a mixture of a planned and market economy; these figures have to be interpreted with great care and may be not reliable.
- 13.
Such an incentive would lead to more credit card transactions. The use of credit cards would provide us with a better documentation of the payment system because card payments are more visible and one clearly sees the type of payment that is used for a certain service or good. If credit cards were used more, this would certainly have a dumping effect on the size and development of the shadow economy.
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Schneider, F. (2017). New Estimates for the Shadow Economies of 11 Asian Countries from 2000 to 2014. In: Rövekamp, F., Bälz, M., Hilpert, H. (eds) Cash in East Asia. Financial and Monetary Policy Studies, vol 44. Springer, Cham. https://doi.org/10.1007/978-3-319-59846-8_3
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