Edited by Friedrich Schneider
Chapter 8: The Shadow Economy in the Residential Construction Sector
Christopher Bajada* 8.1 INTRODUCTION Considerable international literature has been devoted to estimating the size and investigating the consequences of the shadow economy worldwide. Much of this work has primarily focused on developing methodologies to produce aggregate estimates of the shadow economy so as to gauge its size and to study its behaviour and implications for public policy. The literature provides little information on the shadow economy at the broad industry level, for example, estimates of the shadow economy in the services, accommodation, construction, retail trade and primary production sectors of the economy. One reason for this is that the methodologies used to produce the aggregate estimates of the shadow economy cannot be easily applied at the sector level without having the appropriate sector level data (for example, the proportion of cash used in the building construction sector per unit time relative to the total cash in circulation is not available for use with the ‘monetary method’). Although these aggregate studies provide important information on the trends in shadow economy activity, we are unable to determine from them whether one or more of these broad industry sectors dominate or drive the overall level of shadow economy activity. Such information is very important for developing industry specific strategies which could prove more effective in reducing the overall size of the shadow economy than would a broad policy measure that applies across all industries. Despite this, a micro analysis of each sector is undertaken at a country level by each country’s own tax...
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