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Drivers of the underground economy for over a century: A long term look for the United States

Rajeev Goel, James Saunoris and Friedrich Schneider ()

The Quarterly Review of Economics and Finance, 2019, vol. 71, issue C, 95-106

Abstract: Using data over 1870–2014, this paper provides a long-term analysis of the determinants of the U.S. shadow economy. Results show that greater trade openness and a bigger government reduced shadow activity, with inflation and prosperity being statistically insignificant. Politically, congressional party homogeneity reduced the shadow economy. Further, the U.S. shadow economy increased during World War II, while the effects of World War I were insignificant and the Great Depression reduced shadow activity. Finally, geographic changes resulting from the addition of new states to the union was a positive influence on the shadow economy. The short-run relationship(s) between the shadow economy and its determinants exhibits some differences.

Keywords: Shadow economy; Underground economy; Determinants; Taxation; Inflation; Openness; World War; Great Depression; United States (search for similar items in EconPapers)
JEL-codes: H26 K42 (search for similar items in EconPapers)
Date: 2019
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Working Paper: Drivers of the Underground Economy around the Millienium: A Long Term Look for the United States (2017) Downloads
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