On Estimating the Size of the Shadow Economy

15 Pages Posted: 15 Mar 2016

See all articles by Gebhard Kirchgässner

Gebhard Kirchgässner

Universität St. Gallen; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 15, 2016

Abstract

As long as it is employed cautiously enough, the model approach is a useful tool to estimate simultaneously the size and the development of the shadow economy in several countries. However, a second method is necessary to calibrate the model. The currency demand approach can lead to highly implausible results; the size of the shadow economy might be largely overestimated. An alternative is the survey method. For real tests of whether a variable has an impact, procedures are necessary that do not use the same variables as those used to construct the indicator. Thus, to make progress in analysing the shadow economy, the model approach has a role to play, but it has to be complemented by other methods employing different data. The currency demand approach cannot be used as long as it employs the same variables for its constructions.

Keywords: shadow economy, model approach, currency demand approach, survey methods, tax burden, testing, plausibility tests

JEL Classification: O170, C180

Suggested Citation

Kirchgaessner, Gebhard, On Estimating the Size of the Shadow Economy (February 15, 2016). CESifo Working Paper Series No. 5753, Available at SSRN: https://ssrn.com/abstract=2747862 or http://dx.doi.org/10.2139/ssrn.2747862

Gebhard Kirchgaessner (Contact Author)

Universität St. Gallen ( email )

SIAW, Bodanstrasse 8
CH-9000 St.Gallen
Switzerland
+41 71 224 23 47 (Phone)
+41 71 224 22 98 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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