Estimación de la informalidad económica en Paraguay con el índice Tanzi–Feige. Periodo de análisis marzo 2020 a noviembre 2024

Estimation of Economic Informality in Paraguay with the Tanzi–Feige Index. Analysis Period March 2020 to November 2024

Roger Armoa Garcia

MPRA Paper from University Library of Munich, Germany

Abstract: This study estimates a monthly index of economic informality for Paraguay using the currency-demand shadow economy framework (Tanzi–Feige). We specify a log-linear cash demand function that includes the real interest rate, the price level (CPI), economic activity (GDP), and tax pressure.Series are transformed (logs and first differences where appropriate) based on ADF/KPSS tests; we also control for seasonality and outliers to support robust inference. The model’s unexplained component is interpreted as a monetary proxy for informality and is normalized to construct the index. Unlike simple accounting ratios (e.g., currency/M2), this approach adjusts for income, prices, and the opportunity cost of holding cash, isolating deviations attributable to the shadow economy. As an extension, we assessed including cooperative credit (CAC) to capture channels parallel to the formal banking system; we found no severe multicollinearity with tax pressure but (at most) moderate correlation, but we excluded CAC from the main specification due to heavy tails and heteroskedasticity. The results yield a parsimonious and stable index across sensitivity exercises (alternative specifications and diagnostic validation), and we discuss policy implications for tax design and payment traceability, together with limitations and avenues for future research.

Keywords: economic informality; shadow money model; Tanzi–Feige; cash demand; underground economy; econometric estimation; Paraguay (search for similar items in EconPapers)
JEL-codes: C22 C51 E26 E41 H26 O17 (search for similar items in EconPapers)
Date: 2025-08-14, Revised 2025-09-24
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