International Disease Epidemics and the Shadow Economy

31 Pages Posted: 28 Jul 2020

See all articles by Aziz Berdiev

Aziz Berdiev

Bryant University - Department of Economics

Rajeev K. Goel

Illinois State University - Department of Economics

James W. Saunoris

Eastern Michigan University

Date Written: 2020

Abstract

Adding to the emerging body of research related to the current coronavirus crisis, this paper studies the impact of disease epidemics on the worldwide prevalence of the shadow or the underground economy. The informal sector undermines compliance with government regulations and lowers tax collections. Our main hypothesis is that epidemics positively impacts the spread of the shadow economy. Using data on nearly 130 nations and nesting the empirical analysis in the broader literature on the drivers of the shadow sector, we find that both the incidence and the intensity of epidemics positively and significantly contribute to the spread of the underground sector. Numerically, a ten percent increase in the intensity of epidemics leads to an increase in the prevalence of the shadow economy by about 2.1 percent. These findings about the spillovers from epidemics have implications for economic policies in the current times of coronavirus.

JEL Classification: I150, K420

Suggested Citation

Berdiev, Aziz and Goel, Rajeev K. and Saunoris, James W., International Disease Epidemics and the Shadow Economy (2020). CESifo Working Paper No. 8425, Available at SSRN: https://ssrn.com/abstract=3653950 or http://dx.doi.org/10.2139/ssrn.3653950

Aziz Berdiev (Contact Author)

Bryant University - Department of Economics ( email )

RI
United States

Rajeev K. Goel

Illinois State University - Department of Economics ( email )

Normal, IL 61790-4200
United States

James W. Saunoris

Eastern Michigan University ( email )

Eastern Michigan University
Ypsilanti, MI 48197
United States

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