The Shadow Economy In Oecd And Eu Accession Countries:The Impact Of Institutions, Liberalization, Taxation And Regulation

Tax evasion, illicit work and social security fraud are quite common. Most governments try to fight this deviant behavior by punitive measures. But recent empirical data for Germany reveals that, in contrast to standard economic theory, this line of approach is expensive, inefficient and unsuccessful. Instead, governments have to change institutions (e.g., tax system) and regulations. The regression analysis shows that the increasing burden of taxation and social security contributions, along with regulations and the poor quality of institutions are the elementary causes for the rise of the shadow economy, especially in OECD countries. For transition countries, multivariate analysis provides evidence for the significant influence of corruption, economic freedom and the quality of institutions upon the size of their shadow economies.