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Explaining the Shadow Economy in Europe: Size, Causes and Policy Options

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Listed:
  • Mr. Ben Kelmanson
  • Koralai Kirabaeva
  • Leandro Medina
  • Borislava Mircheva
  • Jason Weiss

Abstract

This paper examines the drivers, and reestimates the size of shadow economies in Europe, with a focus on the emerging economies, and recommends policies to increase formality. The size of shadow economies declined across Europe in recent years but remains significant, especially in Eastern Europe. In the emerging European economies, the key determinants of shadow economy size are regulatory quality, government effectiveness, and human capital. The paper argues that a comprehensive package of reforms, focused on country-specific drivers, is needed to successfully combat the shadow economy. The menu of policies most relevant for Europe’s emerging economies include: reducing regulatory and administrative burdens, promoting transparency and improving government effectiveness, as well as improving tax compliance, automating procedures, and promoting electronic payments.

Suggested Citation

  • Mr. Ben Kelmanson & Koralai Kirabaeva & Leandro Medina & Borislava Mircheva & Jason Weiss, 2019. "Explaining the Shadow Economy in Europe: Size, Causes and Policy Options," IMF Working Papers 2019/278, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2019/278
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    References listed on IDEAS

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    Keywords

    WP; shadow economy; shadow economy estimate; shadow economy activity; firm;
    All these keywords.

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