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A New Multidimensional Ranking of Shadow Economy for EU Countries

Gheorghe Zaman and Zizi Goschin

Romanian Journal of Economics, 2016, vol. 43, issue 2(52), 14-33

Abstract: Shadow economy is a perennial, multifaceted and hard to gauge phenomenon that affects to some degree all countries. Scientific research needs to develop rigorous and internationally comparable metrics of shadow economy in order to avoid possible misunderstanding, exaggeration and sometimes bad intentions concerning the assessment of shadow economy, corruption and fiscal fraud. Considering the limitations of single shadow economy indicators we propose a more comprehensive measurement based on a new synthetic shadow economy index (SSEI). This index encompasses three relevant indicators, namely the size of shadow economy per capita, the shadow economy relative to GDP and the countries’ shares in EU total shadow economy. The analysis covered the period 1999 to 2012 and the results indicated that some of the developed EU countries, rather than the new members, are on top positions of the shadow economy. We also found a sigma convergence trend in shadow economy size and intensity among EU-28 countries over 1999-2012. The main conclusion of our paper is that the analyses of shadow economy should be based on a set of relevant indicators, instead of a single indicator.

Keywords: shadow economy metrics; synthetic index; EU. (search for similar items in EconPapers)
JEL-codes: D33 E65 H26 P44 (search for similar items in EconPapers)
Date: 2016
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Handle: RePEc:ine:journl:v:43:y:2016:i:52:p:14-33