Rethinking the Informal Economy and the Hugo Effect

Francesco Pappadà and Kenneth S Rogoff

Journal of the European Economic Association, 2025, vol. 23, issue 5, 1743-1772

Abstract: This paper offers a new approach to measuring the size of the informal economy based on VAT data for the European Union. Although data intensive, our evading value added duty economy (EVADE) measure is simpler and more transparent than existing measures. EVADE also shows more variation across countries of Europe than earlier measures, including higher informality in Greece, Italy, and Spain, for example. Moreover, we find considerably higher variation within countries across time; in a cross-country time series regression, controlling for tax rates, we confirm that the informal economy grows significantly in recessions and decreases in booms, which we term the “Hugo effect”.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/jeea/jvaf006 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jeurec:v:23:y:2025:i:5:p:1743-1772.

Access Statistics for this article

Journal of the European Economic Association is currently edited by Romain Wacziarg

More articles in Journal of the European Economic Association from European Economic Association
Bibliographic data for series maintained by Oxford University Press ().