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Give Me Liberty, or I Will Produce Underground: Effects of Economic Freedom on the Shadow Economy

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  • Aziz N. Berdiev
  • James W. Saunoris
  • Friedrich Schneider

Abstract

This article examines the impact of economic freedom on the shadow economy. Using panel data on over 100 countries from 2000 to 2015, we find that economic freedom is effective at reducing the spread of the shadow economy. Moreover, after disaggregating economic freedom into its five main components, the results suggest that all aspects of economic freedom significantly mitigate shadow activities with freedom from regulation exhibiting the largest impact. Overall, these findings are robust after accounting for alternate measures of the shadow economy, simultaneity, outliers, and nonlinearities. Thus, countries aiming to combat the spread of shadow activities would benefit from policies that support economic freedom.

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  • Aziz N. Berdiev & James W. Saunoris & Friedrich Schneider, 2018. "Give Me Liberty, or I Will Produce Underground: Effects of Economic Freedom on the Shadow Economy," Southern Economic Journal, John Wiley & Sons, vol. 85(2), pages 537-562, October.
    • Handle: RePEc:wly:soecon:v:85:y:2018:i:2:p:537-562
    DOI: 10.1002/soej.12303
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    Cited by:

    1. Owolabi, Adegboyega O. & Berdiev, Aziz N. & Saunoris, James W., 2022. "Is the shadow economy procyclical or countercyclical over the business cycle? International evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 257-270.
    2. Aziz Berdiev & Rajeev K. Goel & James W. Saunoris, 2020. "International Disease Epidemics and the Shadow Economy," CESifo Working Paper Series 8425, CESifo.
    3. Camila Henriquez Mora & James W. Saunoris, 2023. "Is there convergence amongst shadow economies? International evidence," American Journal of Economics and Sociology, Wiley Blackwell, vol. 82(1), pages 15-28, January.
    4. Aziz N. Berdiev & Brandon Gomes & James W. Saunoris, 2023. "Revisiting the nexus between globalisation and the shadow economy: Untying the influences of de jure versus de facto globalisation," The World Economy, Wiley Blackwell, vol. 46(1), pages 27-54, January.
    5. Mohammed Nayel Abu Alfoul & Ibrahim Naser Khatatbeh & Fouad Jamaani, 2022. "What Determines the Shadow Economy? An Extreme Bounds Analysis," Sustainability, MDPI, vol. 14(10), pages 1-22, May.
    6. Goel, Rajeev K. & Saunoris, James W., 2020. "Spatial spillovers of pollution onto the underground sector," Energy Policy, Elsevier, vol. 144(C).
    7. Saunoris, James W., 2024. "Individualism, economic freedom, and the development of the shadow economy," Economic Systems, Elsevier, vol. 48(1).
    8. Aziz N. Berdiev & James W. Saunoris, 2019. "Globalization and Informal Entrepreneurship: A Cross-Country Analysis," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 47(1), pages 65-80, March.
    9. Chletsos, Michael & Sintos, Andreas, 2021. "Hide and seek: IMF intervention and the shadow economy," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 292-319.
    10. Canh Phuc Nguyen & Binh Nguyen Quang & Thanh Dinh Su, 2023. "Institutional frameworks and the shadow economy: new evidence of colonial history, socialist history, religion, and legal systems," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 50(3), pages 647-675, September.
    11. Aziz N. Berdiev & Rajeev K. Goel & James W. Saunoris, 2022. "Do disease epidemics force economic activity underground? International evidence," Contemporary Economic Policy, Western Economic Association International, vol. 40(2), pages 263-282, April.
    12. Richard J. Cebula, 2019. "Labor market freedom and geographic differentials in the percentage unemployment rate in the U.S," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 43(4), pages 828-840, October.
    13. 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).
    14. Aziz N. Berdiev & James W. Saunoris, 2020. "Cross‐Country Evidence Of Corruption Spillovers To Formal And Informal Entrepreneurship," Contemporary Economic Policy, Western Economic Association International, vol. 38(1), pages 48-66, January.
    15. Ben Atta, Oussama & Chort, Isabelle & Senne, Jean Noël, 2022. "Immigration, integration, and the informal economy in OECD countries," GLO Discussion Paper Series 1197, Global Labor Organization (GLO).
    16. Nguyen, Canh Phuc, 2022. "Does economic complexity matter for the shadow economy?," Economic Analysis and Policy, Elsevier, vol. 73(C), pages 210-227.
    17. Md. Nur Alam Siddik & Sajal Kabiraj & Md. Emran Hosen & Md. Firoze Miah, 2022. "Impacts of Political Stability on Shadow Economy: Evidence from Bay of Bengal Initiative for Multi-sectoral Technical and Economic Cooperation Countries," Vision, , vol. 26(2), pages 221-231, June.
    18. Marshall, Emily C. & Saunoris, James & Solis-Garcia, Mario & Do, Trang, 2023. "Measuring the size and dynamics of U.S. state-level shadow economies using a dynamic general equilibrium model with trends," Journal of Macroeconomics, Elsevier, vol. 75(C).
    19. Aziz N. Berdiev & James W. Saunoris, 2023. "The case for independence: Does central bank independence curb the spread of the underground economy?," Kyklos, Wiley Blackwell, vol. 76(3), pages 407-435, August.
    20. Sacchi Agnese & Santolini Raffaella & Schneider Friedrich, 2022. "On the effects of e-participation on shadow economy: a worldwide empirical analysis," German Economic Review, De Gruyter, vol. 23(3), pages 463-491, August.
    21. Elena D’Agostino & Marco Alberto De Benedetto & Giuseppe Sobbrio, 2023. "Does the economic freedom hinder the underground economy? Evidence from a cross-country analysis," Economia Politica: Journal of Analytical and Institutional Economics, Springer;Fondazione Edison, vol. 40(1), pages 319-341, April.
    22. Aziz N. Berdiev & James W. Saunoris & Friedrich Schneider, 2020. "Poverty and the shadow economy: The role of governmental institutions," The World Economy, Wiley Blackwell, vol. 43(4), pages 921-947, April.

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