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An Analysis of The Shadow Economy in Malta: A Currency Demand and MIMIC Model Approach

Author

Listed:
  • Glenn Abela

    (Research Economist, Modelling Office, Economic Research Department, Central Bank of Malta, Malta,)

  • Tiziana Gauci

    (Senior Research Economist, Economic Research Office, Economic Research Department, Central Bank of Malta, Malta,)

  • Noel Rapa

    (Manager, Modelling Office, Economic Research Department, Central Bank of Malta, Malta.)

Abstract

The paper applies two commonly used methods in the literature to estimate the shadow economy in Malta, the Currency Demand Approach and the Multiple Indicator Multiple Causes (MIMIC) model. Given the unobservable nature of the shadow economy, estimates are surrounded by a considerable degree of uncertainty. While these two methods differ somewhat on the historical evolution of the size of the Maltese shadow economy, which in turn can be traced back to their different underlying assumptions, both suggest that it has remained relatively stable over the last decade, standing at just below 21% of official GDP in 2019. Where possible, these estimates are compared to other studies on the same subject where we find that the dynamic properties of our variable follow those found in the literature.

Suggested Citation

  • Glenn Abela & Tiziana Gauci & Noel Rapa, 2022. "An Analysis of The Shadow Economy in Malta: A Currency Demand and MIMIC Model Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 12(1), pages 41-50.
    • Handle: RePEc:eco:journ1:2022-01-07
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    Cited by:

    1. Colin C. Williams, 2023. "A Modern Guide to the Informal Economy," Books, Edward Elgar Publishing, number 18668.
    2. Paraskevi Koufopoulou & Colin C. Williams & Athanassios Vozikis & Kyriakos Souliotis & Antonios Samprakos, 2021. "Estimating Shadow Economy Size in Greece 2000 - 2018: A Flexible MIMIC Approach," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 71(3-4), pages 23-47, July-Dece.
    3. Awadh Ahmed Mohammed Gamal & Joseph David & Mohd Asri Mohd Noor & Mohd Yahya Mohd Hussin & K. Kuperan Viswanathan, 2024. "Asymmetric Effect of Shadow Economy on Environmental Pollution in Egypt: Evidence from Bootstrap NARDL Technique," International Journal of Energy Economics and Policy, Econjournals, vol. 14(3), pages 206-215, May.

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    More about this item

    Keywords

    Shadow Economy; Structural Modelling; MIMIC; Currency Demand Approach; Malta;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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