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The shadow economy in Colombia: size and effects on economic growth

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Abstract

Using the currency demand approach size and development of the Colombian shadow economy are estimated over the period from 1976 to 2002. In the 70s the size fluctuated around 20% of official GDP and rose to 50% in the 90s. The most important factors driving the shadow economy are unemployment and taxation. Analyzing the interaction between shadow and official economy, the shadow economy has a positive effect on the official one. Average growth rate of real per capita GDP is 1.11% between 1976 and 2002 and the shadow economy "explains" on average between 0.09 and 0.27 of this growth.

Suggested Citation

  • Friedrich Schneider & Bettina Hametner, 2007. "The shadow economy in Colombia: size and effects on economic growth," Economics working papers 2007-03, Department of Economics, Johannes Kepler University Linz, Austria.
    • Handle: RePEc:jku:econwp:2007_03
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    More about this item

    Keywords

    Colombian shadow economy; currency demand method; taxation; unemployment; interaction between the shadow and official economy;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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