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on Informal and Underground Economics |
| By: | Khan, Wahaj Ahmed; Siddiqui, Danish Ahmed |
| Abstract: | This paper examines the relationship between money laundering (ML) as well as the shadow economy (SE) with the help of a panel of data from 154 countries, spanning the years 2002 through 2022. The data includes variables about SE, ML and a wide range of socioeconomic and governance indicators (Tax revenue - Percentage of GDP, WGIs, GDP Per Capita, Financial Deposit to GDP, Export to GDP, Import to GDP, Unemployment, Gini index), providing an extensive global coverage. This study examines the bidirectional connection with ML as well as SE and also examines the moderating function of World Governance Indicators (WGIs) to examine how the quality of governance impacts the relationship. Control factors like taxes and GDP per capita, transparency in trade, financial depth, unemployment, income inequality and quality of governance are incorporated based on previous research. The results show a strong two-way connection: ML drives growth in the informal economy, whereas an increased SE assists ML activities. The moderated effect of WGIs is further evidence that strong governance could thwart this illegal cycle. This study fills in a major gap by jointly modeling the relationship with ML and SE across a broad sample and a long period of time instead of treating these two issues in isolation. These findings have significant implications for policy making, suggesting that coordination of fiscal and regulatory or institutional initiatives is necessary in order to defeat both. |
| Keywords: | Governance, Money Laundering, Shadow Economy, Socio-Economic Indicators, World Governance Indicators |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:341068 |
| By: | Khan, Wahaj Ahmed; Siddiqui, Danish Ahmed |
| Abstract: | The paper examines the systemic determinants of Money Laundering Attractiveness (MLA) and its effects taking place in 154 countries during 21 years using panel regressions. The findings suggested that trade openness, especially exports, raises MLA, which increases the volume of trade due to 'distorted' means in most cases. The impact of the MLA on GDP growth is negative, but its effect on inflation and current account balances is relatively insignificant. Socio-economically, life expectancy is the only statistically significant variable in predicting MLA, and reverse causality indicates that perceived gains in literacy, health, and poverty are blinding to potential deficiencies in governance. Institutionally, high-quality democracies appear to lower MLA, including with an increasingly independent judiciary, while good laws and rule-based regulations paradoxically draw MLA where enforcement capabilities are weak. Furthermore, the moderating effect of Worldwide Governance Indicators (WGI) is also evident. These results emphasize the importance of well-rounded anti-money laundering (AML) measures that go beyond formal regulation and incorporate the quality of the institutions, cultural matters, and informal economic activities. The study further underlines the need for targeted governance reforms and stronger enforcement in high-capacity systems vulnerable to exploitation. Integrating AML efforts with development strategies is essential to prevent illicit flows from distorting real progress. |
| Keywords: | AML Measures, Governance, Money Laundering Attractiveness, Shadow Economy, Socio-economically |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:341067 |
| By: | Pascal Nieder; Sven Arne Simon |
| Abstract: | Compliance with complex regulatory requirements can be challenging. We study why and how complexity affects non-compliance in terms of incorrect reporting. Our novel experimental design isolates two distinct complexity effects: an increase in honest mistakes and a substantial shift toward self-serving dishonesty. We identify two mechanisms for this dishonesty shift. First, individuals with social image concerns systematically take advantage of plausible deniability. Second, we document an unexplored form of dishonesty: besides conscious lies, individuals use fraudulent shortcuts in response to complex cheating opportunities. |
| Keywords: | dishonest behavior, complexity, lying, non-compliance, experiment |
| JEL: | C91 D91 H26 K42 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12692 |
| By: | Maike Roth; Friedrich Schneider |
| Abstract: | Using a conducted survey for Germany allows us to evaluate the access to illicit tobacco products and the propensity to engage in illicit purchasing behavior. By separating realized opportunities from stated openness toward future illicit purchases, the analysis provides new insights into the behavioral foundations of illicit tobacco markets. Understanding these mechanisms is particularly relevant in the current policy context. If illicit demand responds not only to prices but also to attitudes toward taxation and regulation, further tax increases may have heterogeneous effects across population groups. Overall, the findings suggest that effective tobacco tax policy should not be based solely on price incentives. Where regulation is perceived as a restriction of freedom, the risk of openness in the illicit market may increase. |
| Keywords: | tobacco tax noncompliance, conducted survey, illicit tobacco products and markets, price incentives, regulation |
| JEL: | K42 M38 H26 O17 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12690 |
| By: | Sandambi, Nerhum |
| Abstract: | This approach focuses specifically on the behaviour of the economy, that is, its economic structure, with particular emphasis on the formal and informal sectors. Thus, the evidence points specifically to the plausible existence of an informal economy in Angola, the significance of which is in fact closely linked to the very nature of the determining factors that are, by their very nature, relevant. A key feature of the informal economic structure relates, above all, to the fact that there is, for example, a limited capacity on the part of the state to generate wealth, as evidenced by significant tax losses; for instance, Angola incurs an annual tax loss of 6.9 billion dollars. On the other hand, however, it nevertheless represents a significant opportunity cost in terms of public policy; thus, the analysis suggests that, to the extent that there is a substantial expansion of the informal economy, on the other hand, there is a particular trend towards the continuous emergence of new informal professions. Informal markets exhibit characteristics that are specific to them; for example, most informal workers do not have fixed monthly incomes, and income levels depend directly on daily informal economic activities. Thus, the greater the flow of informal economic activities, the higher the income levels of economic agents will naturally be. On the other hand, approach show in particular, that, many Underdevelopment Countries, they not give attention to informal economy, where, on majority of this countries see the informal economy as statistics, the politics and institutions not exist in these Countries, in particular. |
| Date: | 2026–06–05 |
| URL: | https://d.repec.org/n?u=RePEc:osf:socarx:uf2vr_v1 |
| By: | De Weerdt, Joachim; Duquennois, Claire; Oliveres-Mallol, Adriana |
| Abstract: | A quiet but important transformation is taking place in Malawi’s rural labor markets. Increasingly, rural Malawians are working fewer hours on their own farms and spending more time in ganyu – an informal labor arrangement based on day- or piece‑work, typically requiring very low levels of skill and offering low and uncertain pay. While ganyu has long existed in Malawi, its scale and role in rural livelihoods have changed markedly. It is no longer merely a short‑term coping strategy but has become a central source of employment for a growing share of the rural population. This shift is especially pronounced among men, young people, and individuals with little land and limited formal education. At the same time, those who rely more heavily on ganyu are finding it increasingly difficult to secure adequate and stable access to food. The rapid expansion of ganyu has important implications for the kind of policies that will advance inclusive development in Malawi. |
| Keywords: | informal markets; informal economy; labour market; policies; Malawi; Africa; Sub-Saharan Africa; Southern Africa |
| Date: | 2026–05–12 |
| URL: | https://d.repec.org/n?u=RePEc:fpr:masspn:182878 |