Edited by Arnis Sauka, Friedrich Schneider and Colin C. Williams
The shadow economy is important to address because of its negative consequences. One major problem is that it hampers economic growth by pushing the allocation of resources from productive to unproductive use, causing countries to spiral into ‘bad equilibrium’ where tax evasion generally leads to increasing tax rates, resulting in further increases in the shadow economy (Estrin and Mickiewicz, 2012; Putniņš and Sauka, 2015). Given such consequences, tackling the shadow economy has become a focus – and in some cases even a priority – of policy makers around the world, both in relatively more and less developed countries. Yet, despite the increasing number of attempts to measure both the size and determinants of the shadow economy, research in this area is still very much at the preliminary stage. Arguably, the main reason for this is that the shadow economy is very difficult to measure and currently there is no consensus on a commonly accepted method for measuring the size of the phenomenon. This is further hampered by the lack of a broadly accepted definition of the shadow economy in the literature.