Shadow Economy: What Factors Matter in the French Case?

Sanvi Avouyi-Dovi, Lorraine Chouteau, Lucas Devigne and Emmanuelle Politronacci

Working papers from Banque de France

Abstract: We build a model based on a structural dynamic approach to assess the Non-Observed Economy (NOE) over the period 1990-2019 in France. Our strategy is focused on a systematic scan of the potential causes of shadow economy. We show that the discrepancy between electricity consumption and real GDP growth rates is the main driver of the NOE. However, factors, such as drug offences and net shipments of banknotes also have significant effects on hidden activities even though their effects do not seem to be as strong. The NOE remains non-negligible in France, but its ratio, relative to the GDP, has decreased considerably in the 2000s. Finally, we observe strong links between the NOE index and the cash demand indicators. Thus, concordance tests show a noticeable synchronization between the NOE indexes (global and legal components) and the net issuance of banknotes, especially the total net issuance and the net issuance of the 50 and 200 denominations. Furthermore, the NOE indexes and GDP as well as self-employment are synchronized. We also observe positive correlations between the cyclical components of the total net issuance of banknotes and the estimated shadow economy indexes. Finally, there are some bi-directional causal relationships between the NOE indexes and the aggregate banknote demand. However, there is only a unidirectional causality between these indexes and the demand for Small denominations ( 5, 10, 20).

Keywords: Shadow Economy; Non-Observed Economy; Structural Equations; MIMIC Model (search for similar items in EconPapers)
JEL-codes: C32 C51 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2023
New Economics Papers: this item is included in nep-eec, nep-eur and nep-iue
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:930

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