Robust Determinants of the Shadow Economy: An International Comparison

37 Pages Posted: 19 May 2016

See all articles by Rajeev K. Goel

Rajeev K. Goel

Illinois State University - Department of Economics

Michael A. Nelson

University of Akron - Department of Economics

Date Written: April 27, 2016

Abstract

To synthesize the literature on determinants of the shadow economy, this paper uses three cross-national shadow economy measures and employs numerous determinants over hundreds of model combinations to identify robust determinants of the shadow economy and address modeling uncertainty. We find that bureaucratic complexity is more significant than monetary severity in driving shadow activity. The incentives of new shadow entrepreneurs are somewhat different. A one standard deviation increase in tax complexity increases overall shadow economy by over ten percent of the mean. In contrast, a similar increase in business startup costs increases new informal entrepreneurs by almost more than double.

Keywords: shadow economy, robustness analysis, modeling uncertainty, entry barriers, development, taxes

JEL Classification: M130, H260, K420

Suggested Citation

Goel, Rajeev K. and Nelson, Michael A., Robust Determinants of the Shadow Economy: An International Comparison (April 27, 2016). CESifo Working Paper Series No. 5873. Available at SSRN: https://ssrn.com/abstract=2780865

Rajeev K. Goel (Contact Author)

Illinois State University - Department of Economics ( email )

Normal, IL 61790-4200
United States

Michael A. Nelson

University of Akron - Department of Economics ( email )

Akron, OH 44325
United States
330-972-7939 (Phone)
330-972-5356 (Fax)

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