nep-iue New Economics Papers
on Informal and Underground Economics
Issue of 2017‒08‒27
four papers chosen by
Catalina Granda Carvajal
Universidad de Antioquia

  1. Shadow Economies around the World: New Results for 158 Countries over 1991-2015 By Friedrich Schneider
  2. Restricting or Abolishing Cash: An Effective Instrument for Fighting the Shadow Economy, Crime and Terrorism? By Friedrich Schneider
  3. Estimating the roles of financial sector development and international trade openness in underground economies: Evidence from the European Union By Imamoglu, Hatice
  4. The effect of card payments on vat revenue in Greece By George Hondroyiannis; Dimitrios Papaoikonomou

  1. By: Friedrich Schneider
    Abstract: This paper is a first attempt to estimate the size and development of the shadow economy of 158 countries over the period 1991 up to 2015. Using the Multiple Indicators, Multiple Causes (MIMIC) method we apply for the first time (i) the light intensity approach instead of GDP avoiding the problem that quite often GDP is used as a cause and indicator variable, (ii) the Predictive Mean Matching (PMM) method, and (iii) a variety of robustness tests. Results suggest that the average size of the shadow economy of these 158 countries over 1991-2015 is 32.5% of official GDP, which was 34.82% in 1991 and decreased to 30.66% in 2015. The lowest size of the shadow economy East Asian countries with 16.77% averaged over the period 1991- 2015, then follows OECD countries with 18.7% and the highest value have Latin American and sub-Saharan African countries with values above 35%.
    Keywords: Shadow economies of 158 countries, MIMIC estimations, the light intensity approach, tax burden, regulation, trade openness, corruption.
    JEL: C39 C51 C82 H11 H26
    Date: 2017–07
  2. By: Friedrich Schneider
    Abstract: This paper has four goals: First, the use of cash as a possible driving factor of the shadow economy is investigated. Second, the use of cash in crime, here especially in corruption, is also econometrically investigated. The influence is somewhat larger than on the shadow economy, but it is certainly not a decisive factor for bribery activities. Some figures about organized crime are also shown; the importance of cash is diminishing. Third, some remarks about terrorism are made and here a cash limit doesn’t prevent terrorism. Fourth, some remarks are made about the restriction or abolishment of cash on civil liberties, with the result that this will extremely limit them. The conclusion of this paper is that cash has a minor influence on the shadow economy, crime and terrorism, but potentially a major influence on civil liberties.
    Keywords: cash, cash limit, shadow economy, crime, corruption, transnational crime organizations, financial proceeds, money laundering, illegal cross-border flows, tax fraud figures.
    Date: 2017–04
  3. By: Imamoglu, Hatice
    Abstract: This paper investigates both the static and dynamic relationships between the development within the financial sector development and international trade openness with regard to the size of the underground economy in 20 EU (European Union) Countries. Panel data analysis will be conducted for the period 2006 to 2014, in order to examine the effect of the financial sector development and trade openness on the size of the underground economy. In addition to the static relationship framework, the Arellano-Bond Generalized Method of Moments econometric method will be applied to examine the dynamic framework between the variables. The main findings of this paper suggest that financial development has a significant impact on the size of the underground economy, and the existence of the negative correlation between the official GDP and the size of the underground economy is proven. In conclusion, the development within the financial sector is a significant contributor to the underground economy.
    Keywords: Financial Sector Development,International Trade Openness,Corruption Perception Index,Underground Economy,European Union Countries
    JEL: C23 E26 E44 E10
    Date: 2017
  4. By: George Hondroyiannis (Bank of Greece and Harokopio University); Dimitrios Papaoikonomou (Bank of Greece)
    Abstract: The effect of card payments on VAT revenue performance in Greece is investigated using quarterly observations on card transactions during 2002q1-2016q2. Time-varying-coefficient methods are employed, in order to study the role of increasing card payments after the imposition of cash restrictions in July 2015. We find that (i) a 1pp increase in the share of card payments in private consumption results in approximately 1% higher revenue through increased compliance; (ii) lowering the VAT rate can generate revenue gains; (iii) card transactions may facilitate tax buoyancy. It is argued that stronger incentives for using card payments in tax evading industries can help lock-in the recent strong revenue performance when cash restrictions are lifted.
    Keywords: VAT; card payments; time-varying-coefficients; Greece
    JEL: E62 H21 H25 H26 K34
    Date: 2017–05

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