Reflections on the Meaning and Measurement of Unobserved Economies: What Do We Really Know About the 'Shadow Economy'

Journal of Tax Administration (2016) Vol. 2 No. 1.

50 Pages Posted: 6 Feb 2016  

Edgar L. Feige

University of Wisconsin - Madison - Department of Economics

Date Written: February 1, 2016

Abstract

This paper reviews the meaning and measurement of unobserved economies germane to tax evasion and macroeconomic information systems. These include the unreported, non-observed, underground, illegal, informal and unrecorded economies. It reviews the progress and shortcomings of national and international agency efforts to measure these unobserved economies, noting what they have in common, what distinguishes one from another and their interconnections. It then examines the meaning of Professor Schneider’s Shadow Economy (SSE), and the veracity of his claim to have accurately estimated its size and trend worldwide by employing a MIMIC model methodology. It concludes that SSE estimates suffer from conceptual flaws, apparent manipulation of results and insufficient documentation for replication, questioning their place in the academic, policy and popular literature.

Keywords: Tax evasion, shadow economy, non-observed, underground, illegal, informal, unrecorded, MIMIC, cash, National Income and Product Accounts, Friedrich Schneider

JEL Classification: E26, O17, H26, E41, C51, C82, K42

Suggested Citation

Feige, Edgar L., Reflections on the Meaning and Measurement of Unobserved Economies: What Do We Really Know About the 'Shadow Economy' (February 1, 2016). Journal of Tax Administration (2016) Vol. 2 No. 1.. Available at SSRN: https://ssrn.com/abstract=2728060

Edgar L. Feige (Contact Author)

University of Wisconsin - Madison - Department of Economics ( email )

1180 Observatory Drive
Madison, WI 53706
United States

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