The Shadow Economy in OECD Countries: Panel-Data Evidence

25 Pages Posted: 6 Jun 2011  

Konstantin A. Kholodilin

German Institute for Economic Research (DIW Berlin)

Ulrich Thiessen

German Institute for Economic Research (DIW Berlin)

Date Written: May 2011

Abstract

In this paper, the extent of the shadow economy in OECD countries is investigated. The estimates of the size of the shadow economy are obtained using the panel-data techniques applied to the data on 38 OECD member states over the period 1991-2007. Our estimates tend to be somewhat lower than the alternative estimates. However, our and alternative estimates of shadow economy are quite well correlated - the corresponding correlation coefficients lie between 0.63 and 0.65. The only exception is our estimates for 2002 and those of Schneider et al. (2010) for 2002, for which a low correlation is observed. We find that the estimates of the size of the shadow economy are very sensitive to the assumption on the velocity of money circulation. It is shown that the micro and macro-evidence are consistent at a relatively low velocity of money circulation.

Keywords: shadow economy, OECD countries, panel-data estimation

JEL Classification: C51, E26

Suggested Citation

Kholodilin, Konstantin A. and Thiessen, Ulrich, The Shadow Economy in OECD Countries: Panel-Data Evidence (May 2011). DIW Berlin Discussion Paper No. 1122. Available at SSRN: https://ssrn.com/abstract=1858714 or http://dx.doi.org/10.2139/ssrn.1858714

Konstantin A. Kholodilin (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Ulrich Thiessen

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

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