Chapter 7: The Shadow Economy and Do-it-Yourself Activities: What Do We Know?
7 The shadow economy and do-ityourself activities: what do we know? Andreas Buehn and Alexander Karmann 7.1 INTRODUCTION Why study the shadow economy and do-it-yourself (DIY) activities? Shadow economic activities increasingly capture the interest of scholars, policymakers, journalists and the public alike. In broad terms, the shadow economy covers a wide range of economic activities that are not taxed, regulated or reported to authorities. These activities take place outside a society’s legal system and are thus not recorded in national (income) accounts. Two main aspects make the shadow economy an interesting and relevant research object for economists. First, according to the overwhelming majority of the available empirical evidence, the size of the shadow economy has been growing in most countries over the last decades. For example, Schneider, Buehn and Montenegro (2010) estimate that its average size amounted to approximately 35 per cent and 34 per cent of the gross domestic product (GDP) in developing and transition countries of the former Soviet Union and Eastern Europe in 2005, respectively. While the shadow economies in developing and transition countries are relatively large, the shadow economy is much smaller in developed countries: on average, it amounted to ‘only’ 17 per cent of GDP by 2005 (Schneider, Buehn and Montenegro, 2010). These figures nevertheless suggest that the shadow economy has reached a remarkable size in almost all countries around the world. Consequently, it has attracted much interest in both, the (public) media and the academic literature alike. A second aspect is that effective economic...
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