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Robust Determinants of the Shadow Economy: An International Comparison

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  • Rajeev K. Goel
  • Michael A. Nelson

Abstract

To synthesize the literature on determinants of the shadow economy, this paper uses three cross-national shadow economy measures and employs numerous determinants over hundreds of model combinations to identify robust determinants of the shadow economy and address modeling uncertainty. We find that bureaucratic complexity is more significant than monetary severity in driving shadow activity. The incentives of new shadow entrepreneurs are somewhat different. A one standard deviation increase in tax complexity increases overall shadow economy by over ten percent of the mean. In contrast, a similar increase in business startup costs increases new informal entrepreneurs by almost more than double.

Suggested Citation

  • Rajeev K. Goel & Michael A. Nelson, 2016. "Robust Determinants of the Shadow Economy: An International Comparison," CESifo Working Paper Series 5873, CESifo.
    • Handle: RePEc:ces:ceswps:_5873
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    References listed on IDEAS

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    1. Phoebe W. Ishak & Mohammad Reza Farzanegan, 2022. "Oil price shocks, protest, and the shadow economy: Is there a mitigation effect?," Economics and Politics, Wiley Blackwell, vol. 34(2), pages 298-321, July.

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    More about this item

    Keywords

    shadow economy; robustness analysis; modeling uncertainty; entry barriers; development; taxes;
    All these keywords.

    JEL classification:

    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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