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Estimating the size of informal economy in a post-transition country – the case of Poland

Author

Listed:
  • Stanisław Cichocki

    (Faculty of Economic Sciences, University of Warsaw, Warsaw, Poland)

  • Andrzej Torój

    (SGH Warsaw School of Economics, Institute of Econometrics, Warsaw, Poland)

Abstract

The size of the informal economy in Poland is estimated by means of the Currency Demand Approach (CDA). Using quarterly data for the period 1999–2019, we adopt two separate econometric approaches. First, we specify a single equation model to estimate it with the Fully-Modified OLS method. Second, the CDA coefficients are treated as a cointegrating vector in a cointegrated VAR. The size of the informal economy in Poland is found to have diminished from about 32% of GDP in 2000 to about 12% of GDP in 2019. We provide confidence intervals for our estimates which, to our best knowledge, are rarely presented in the literature; their width ranges from 3 to 7% of GDP.

Suggested Citation

  • Stanisław Cichocki & Andrzej Torój, 2023. "Estimating the size of informal economy in a post-transition country – the case of Poland," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 23(1), pages 91-116.
    • Handle: RePEc:bic:journl:v:23:y:2023:i:1:p:91-116
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    File URL: https://www.tandfonline.com/doi/epdf/10.1080/1406099X.2023.2228589
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    More about this item

    Keywords

    Informal economy; currency demand approach; cointegration; vector errorcorrection;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General

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