The Prevalence of Informal Work and Labour
In this chapter, we turn our attention to the size of the shadow economy in developed countries as well as what determines the magnitude of the shadow economy in such economies. To do this, we here report the results of the MIMIC method on not only the variations in the magnitude of the shadow economy across the developed world but also the major driving forces underpinning its existence. In doing so, our intention is to provide an estimate of the magnitude of the shadow economy in developed nations and an analysis of the extent to which particular determinants contribute to the size and development of the shadow economy and how that relative impact varies across countries. For example, is it the case that the tax burden is relatively more important than tax morale? And does welfare spending influence the size of the shadow economy? Identifying such determinants is crucial if action is to be taken to tackle the shadow economy. Unless the driving forces underpinning the shadow economy are understood, governments will not comprehend where they can intervene in order to reduce its size and neither will there be understanding of the way in which these interventions vary across different countries.
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