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A methodology for determining the ‘cash economy’ in the European Union via an announcement effect

Author

Listed:
  • John Cullis

    (University of Bath)

  • Bruce Morley

    (University of Bath)

Abstract

One of the most important policy considerations currently for all governments across the European Union (EU) concerns the need to increase tax revenue so as to reduce their unsustainable budget deficits. One key policy involves reducing the amount of revenue lost as a result of the ‘cash economy’, but before this is possible they first need to have some idea of its size. This study provides evidence of the importance of the cash economy across the EU and suggests that changes in house prices, when the Euro was formed in 1999 can be used as a basis to measure its magnitude. These results build on the theoretical model on how individuals who wished to hide their domestic cash from the authorities when the European single currency was formed in 1999, would have needed to acquire a physical asset, most likely property. This implies changes in property prices between the announcement of the Euro and its implementation reflect the level of wealth being hidden in this way and therefore the extent of the cash economy.

Suggested Citation

  • John Cullis & Bruce Morley, 2017. "A methodology for determining the ‘cash economy’ in the European Union via an announcement effect," European Journal of Law and Economics, Springer, vol. 44(1), pages 113-129, August.
    • Handle: RePEc:kap:ejlwec:v:44:y:2017:i:1:d:10.1007_s10657-014-9451-2
    DOI: 10.1007/s10657-014-9451-2
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    References listed on IDEAS

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    More about this item

    Keywords

    European Union; Cash economy; Informal economy; Housing; Budget deficit;
    All these keywords.

    JEL classification:

    • K34 - Law and Economics - - Other Substantive Areas of Law - - - Tax Law
    • R48 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government Pricing and Policy

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