Using Dynamic Panel Methods to Estimate Shadow Economies Around the World, 1984-2006

James Alm () and Abel Embaye ()

No 1303, Working Papers from Tulane University, Department of Economics

Abstract: The paper estimates the size of shadow economy for 111 countries for the years 1984 to 2006 based on the currency demand approach. An important innovation is our use of dynamic panel data methods, which allows us to make several important contributions. First, we estimate the shadow economy for a range of heterogeneous countries that previously could not be included in the same regression. Second, we include variables that measure institutional quality in countries, including a variable that measures enforcement efforts. Third, we account for the persistence of currency demand as it evolves over time. Our results indicate a substantial shadow economy across countries, ranging from 10 to 86 percent of GDP, with some tendency to grow over time. We also find that the shadow economy varies significantly by country income group. The mean shadow economy is 17 percent of GDP for OECD countries, 24 percent for non-OECD high income countries, 33 percent for upper middle income countries, 37 percent for lower middle income countries, and 38 percent for low income countries.

Keywords: tax evasion; shadow economy; currency demand method; panel data (search for similar items in EconPapers)
JEL-codes: C33 E41 H21 H26 O17 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2013-02
New Economics Papers: this item is included in nep-iue and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (93)

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http://repec.tulane.edu/RePEc/pdf/tul1303.pdf First Version, February 2013 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:tul:wpaper:1303

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