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Exploring the dynamics of the shadow economy across US states

Author

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  • Berdiev
  • Cullen Pasquesi-Hill
  • Saunoris

Abstract

This article examines the dynamics of the shadow economy using data for 50 US states over the period 1998-2008. Using a panel VAR model, we analyse the impulse response of the shadow economy to an orthogonal shock in capital tax rates, educational attainment, union participation and gross state product. We find evidence of significant dynamics underlying the relationship between the shadow economy and its determinants. The results remain robust to alternate measures of the determinants of the shadow economy, alternate causal ordering of the variables in the system and conditioning on the level of income in each state.

Suggested Citation

  • Berdiev & Cullen Pasquesi-Hill & Saunoris, 2015. "Exploring the dynamics of the shadow economy across US states," Applied Economics, Taylor & Francis Journals, vol. 47(56), pages 6136-6147, December.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:56:p:6136-6147
    DOI: 10.1080/00036846.2015.1064081
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    Cited by:

    1. Ahmad, Waqar & Hussain, Babar, 2023. "Fiscal Policy Effects on Shadow Economy: Empirical Evidence from Developing Countries," Asian Journal of Applied Economics, Kasetsart University, Center for Applied Economics Research, vol. 30(2), July.
    2. Sèna Kimm Gnangnon, 2022. "Do Aid for Trade Flows Help Reduce the Shadow Economy in Recipient Countries?," Economies, MDPI, vol. 10(12), pages 1-33, December.
    3. Goel, Rajeev K. & Saunoris, James W. & Schneider, Friedrich, 2019. "Drivers of the underground economy for over a century: A long term look for the United States," The Quarterly Review of Economics and Finance, Elsevier, vol. 71(C), pages 95-106.
    4. Goel, Rajeev K. & Nelson, Michael A., 2016. "Shining a light on the shadows: Identifying robust determinants of the shadow economy," Economic Modelling, Elsevier, vol. 58(C), pages 351-364.
    5. Isaac Ketu & Arsene Mouongue Kelly & Jules-Eric Tchapchet Tchouto, 2024. "Does economic complexity reduce the size of the shadow economy in African countries?," SN Business & Economics, Springer, vol. 4(1), pages 1-27, January.
    6. Aziz N. Berdiev & James W. Saunoris, 2019. "On the Relationship Between Income Inequality and the Shadow Economy," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(2), pages 224-249, April.
    7. Barra, Cristian & Papaccio, Anna & Ruggiero, Nazzareno, 2024. "Are cooperative and commercial banks equally effective in reducing the shadow economy? International evidence," Economic Modelling, Elsevier, vol. 138(C).
    8. Sena Kimm Gnangnon, 2023. "Effect of the Shadow Economy on Tax Reform in Developing Countries," Economies, MDPI, vol. 11(3), pages 1-49, March.
    9. Kpognon, Koffi D., 2022. "Fostering domestic resources mobilization in sub-Saharan Africa: Linking natural resources and ICT infrastructure to the size of informal economy," Resources Policy, Elsevier, vol. 77(C).
    10. Cong Minh Huynh & Tan Loi Nguyen, 2020. "Fiscal policy and shadow economy in Asian developing countries: does corruption matter?," Empirical Economics, Springer, vol. 59(4), pages 1745-1761, October.
    11. Cong Minh Huynh & Vu Hong Thai Nguyen & Hoang Bao Nguyen & Phuc Canh Nguyen, 2020. "One-way effect or multiple-way causality: foreign direct investment, institutional quality and shadow economy?," International Economics and Economic Policy, Springer, vol. 17(1), pages 219-239, February.
    12. Imamoglu, Hatice, 2017. "Estimating the roles of financial sector development and international trade openness in underground economies: Evidence from the European Union," Economics Discussion Papers 2017-50, Kiel Institute for the World Economy (IfW Kiel).
    13. Berdiev, Aziz N. & Saunoris, James W., 2016. "Financial development and the shadow economy: A panel VAR analysis," Economic Modelling, Elsevier, vol. 57(C), pages 197-207.
    14. Dagmara Nikulin & Ewa Lechman, 2021. "Shadow Economy in Poland: Results of the Survey," SpringerBriefs in Economics, in: Shadow Economy in Poland, chapter 0, pages 49-65, Springer.
    15. Caro, Paolo Di & Sacchi, Agnese, 2020. "The heterogeneous effects of labor informality on VAT revenues: Evidence on a developed country," Journal of Macroeconomics, Elsevier, vol. 63(C).
    16. Kpognon, Koffi D., 2022. "Effect of Natural Resources on the Size of Informal Economy in sub-Saharan Africa: An Empirical Investigation," Structural Change and Economic Dynamics, Elsevier, vol. 63(C), pages 1-14.

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