Rethinking the Informal Economy and the Hugo Effect

32 Pages Posted: 14 Aug 2023

See all articles by Francesco Pappadà

Francesco Pappadà

Banque de France; Paris School of Economics (PSE)

Kenneth Rogoff

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: August 11, 2023

Abstract

This paper offers a new approach to measuring the size of the informal economy based on VAT data for the European Union. Although data intensive, our EVADE measure is simpler and more transparent than existing measures. EVADE also shows more variation across coun- tries of Europe than earlier measures, including significantly higher informality in Greece, Italy and Spain, for example. Moreover, we find considerably higher variation within coun- tries across time; in a cross-country time series regression, controlling for tax rates, we con- firm that the informal economy grows significantly in recessions and decreases in booms, which we term the “Hugo effect”.

Keywords: Informal Economy, Business Cycles, Growth, VAT compliance.

JEL Classification: E26, E32, H26, O17

Suggested Citation

Pappadà, Francesco and Rogoff, Kenneth S., Rethinking the Informal Economy and the Hugo Effect (August 11, 2023). Available at SSRN: https://ssrn.com/abstract=4538487 or http://dx.doi.org/10.2139/ssrn.4538487

Francesco Pappadà (Contact Author)

Banque de France ( email )

Paris
France

Paris School of Economics (PSE) ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France

Kenneth S. Rogoff

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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