Immigration, amnesties and the shadow economy

This paper investigates the effects of immigration and immigration amnesties on the shadow economy. We find a robust and positive relationship between the presence of immigrants and the unobserved economic activity at the local level, but the implementation of a large immigration amnesty substantially weakens this link. Our analysis exploits newly compiled datasets of Italian immigration and shadow economy estimates for the years 1995-2006, comprising a panel of local-level aggregate statistical information, and a micro-level survey of representative households. We exploit the discontinuity created by the 2002 immigration amnesty, which increased the stock of migrants by almost 50%.