Energy Based Estimation of the Shadow Economy: The Role of Governance Quality

32 Pages Posted: 12 Dec 2019

See all articles by Dimitris Psychoyios

Dimitris Psychoyios

University of Piraeus - Department of Industrial Management

Olympia Missiou

International Hellenic University (IHU)

Theologos Dergiades

University of Macedonia

Date Written: july 30, 2019

Abstract

The shadow economy (SE) is a pathological normalcy, not only in developing countries but also in developed ones, causing disagreeable distortions in the real economy. In this paper, we estimate the size of the informal sector in nineteen countries of the European Union (EU) by implementing three variations of the physical input approach (we use electricity consumption as input). All estimates show that EU countries experience high shadow economy levels with a decreasing trend. Moreover, we assess the explanatory power of three governance quality indicators of the informal sector using a set of panel regression specifications as well as a set of quantile regression specifications. Both approaches show that overall governance quality is the most prominent factor in determining the SE levels. Given the inherent advantage of quantile regression to identify impact differentiations across the conditional distribution of the dependent variable a significant policy action is revealed. In particular, countries with high shadow economy levels can reduce their informal sector, at an increasing rate, by improving governance quality.

Keywords: Shadow economy, Energy, Panel and Quantile regression, Governance quality

JEL Classification: E26, G15, Q43, O17, O52

Suggested Citation

Psychoyios, Dimitrios and Missiou, Olympia and Dergiades, Theologos, Energy Based Estimation of the Shadow Economy: The Role of Governance Quality (july 30, 2019). Quarterly Review of Economics and Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3492623

Dimitrios Psychoyios (Contact Author)

University of Piraeus - Department of Industrial Management ( email )

80, Karaoli & Dimitriou Str.
18534 Piraeus
Greece

Olympia Missiou

International Hellenic University (IHU) ( email )

14th km Thessaloniki
Moudania
Thermi, Thessaloniki 57001
Greece

Theologos Dergiades

University of Macedonia ( email )

156 Egnatia St.
PO 1591
Thessaloniki
Greece
54636 (Fax)

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