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Does the EU financing system contribute to shadow economic activity?

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  • Herwartz, Helmut
  • Theilen, Bernd

Abstract

Financial contributions to the EU budget depend basically on official GDP. This means that countries with higher shadow economic activity contribute less than they should contribute in a system based on actual GDP and therefore could reduce their incentive to fight against such activities. In this paper we investigate if the EU financing system really has an influence on the intensity with which governments in EU member states fight against shadow economic activity. We find that the EU net contributors significantly fight more intensively against shadow economic activity while EU net receivers significantly fight less. As a result, shadow economic activity is higher in net receiver and lower in net contributor countries than it were in comparison with a scenario of nationally balanced EU funding. Quantitatively and averaged over the time period 2001-2007, the diagnosed effect amounts to a stimulation of hidden economic activity by almost 10% for particular economies. JEL classification: C31, D63, F33, H21, H26. Keywords: EU financing system, shadow economy, tax auditing.

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  • Herwartz, Helmut & Theilen, Bernd, 2011. "Does the EU financing system contribute to shadow economic activity?," Working Papers 2072/169685, Universitat Rovira i Virgili, Department of Economics.
    • Handle: RePEc:urv:wpaper:2072/169685
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    More about this item

    Keywords

    Finances públiques -- Unió Europea; Països de la; Pressupost -- Unió Europea; Països de la; Economia submergida; 339 - Comerç. Relacions econòmiques internacionals. Economia mundial. Màrqueting;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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