The shadow economy (also known as the black or underground economy) covers a vast array of trade, goods and services that are not part of the official economy of a country. This original and comprehensive Handbook presents the latest research on the size and development of the shadow economy, which remains an integral component of the economies of most developing and many developed countries.
Estimations of the shadow economies for 162 countries are presented over 1999 to 2006–2007. According to these estimations, the estimated average size of the shadow economies (as a percentage of ‘official’ gross domestic product) in sub-Saharan Africa is 37.6 percent; in Europe and Central Asia (mostly transition countries) 36.4 per cent, and in high-income OECD countries 13.4 per cent. The tax burden combined with labour market regulations as well as the quantity and quality of public goods and services are the driving forces of the shadow economy. The estimations are done using the MIMIC estimation procedure, which is presented in this chapter and its strength and weaknesses discussed in detail.
This research review explores a selection of key articles which examine the shadow economy and its relationship with underground activities. It contains important work on surveys and conceptual considerations, theoretical approaches and policy implications. It further focuses on the empirical results of studies into the shadow economy, and considers tax evasion, tax compliance, tax morale and government institutions.