Does the EU Financing System Contribute to Shadow Economic Activity?

27 Pages Posted: 7 Jun 2013

See all articles by Helmut Herwartz

Helmut Herwartz

University of Goettingen (Gottingen)

Bernd Theilen

Universitat Rovira i Virgili - Department of Economics

Date Written: July 2013

Abstract

Financial contributions to the EU budget depend basically on official GDP. This means that countries with higher shadow economic activity contribute less than they should contribute in a system based on actual GDP and therefore could reduce their incentive to fight against such activities. In this paper we investigate if the EU financing system really has an influence on the intensity with which governments in EU member states fight against shadow economic activity. We find that the EU net contributors significantly fight more intensively against shadow economic activity while EU net receivers fight less. As a result, shadow economic activity is higher in net receiver and lower in net contributor countries than it were in comparison with a scenario of nationally balanced EU funding. Quantitatively and averaged over the time period 2001–2007, the diagnosed effect amounts to a stimulation of hidden economic activity by almost 10% for particular economies.

Suggested Citation

Herwartz, Helmut and Theilen, Bernd, Does the EU Financing System Contribute to Shadow Economic Activity? (July 2013). Economics & Politics, Vol. 25, Issue 2, pp. 135-161, 2013. Available at SSRN: https://ssrn.com/abstract=2275767 or http://dx.doi.org/10.1111/ecpo.12007

Helmut Herwartz (Contact Author)

University of Goettingen (Gottingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Bernd Theilen

Universitat Rovira i Virgili - Department of Economics ( email )

Tarragona
Spain

Register to save articles to
your library

Register

Paper statistics

Downloads
0
Abstract Views
139
PlumX Metrics