Grey Matters: Charting the Development of the Shadow Economy

60 Pages Posted: 25 Jan 2017

See all articles by Donal Mac Géidigh

Donal Mac Géidigh

Queen's University Belfast

Friedrich Schneider

Johannes Kepler University Linz - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)

Matthias Blum

Technische Universität München (TUM)

Date Written: December 12, 2016

Abstract

The shadow economy has long been an area of research for policymakers. The determinants of underground activity of late have been identified as high tax burdens and increased regulation, but has this relationship always existed? This seminal work examines the shadow economy in Norway, Sweden, the United Kingdom and the United States over the past 145 (from 1870 to 2015) years using the Currency Demand Approach and finds that the underground economy is stabilising. To our knowledge this is the first attempt to estimate the size and development of the shadow economy over such a long period and due to this we get some new insights. Our results clearly show that the shadow economy in earlier times was considerably higher than in the last 50 years. This paper also analyses whether a plateau has been reached and questions what efforts could be made to further reduce this informal economy.

Keywords: shadow economy, underground activity, historical tax rates

JEL Classification: H260, K420, O170

Suggested Citation

Mac Géidigh, Donal and Schneider, Friedrich G. and Blum, Matthias, Grey Matters: Charting the Development of the Shadow Economy (December 12, 2016). CESifo Working Paper Series No. 6234, Available at SSRN: https://ssrn.com/abstract=2905624

Donal Mac Géidigh

Queen's University Belfast ( email )

25 University Square
Belfast, BT7 1NN
Ireland

Friedrich G. Schneider (Contact Author)

Johannes Kepler University Linz - Department of Economics ( email )

Altenbergerstrasse 69
A-4040 Linz, 4040
Austria
+43 732 2468 8210 (Phone)
+43 732 2468 8208 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Matthias Blum

Technische Universität München (TUM) ( email )

Arcisstrasse 21
Munich, DE 80333
Germany

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