Rethinking the Informal Economy and the Hugo Effect

Francesco Pappadà and Kenneth Rogoff

PSE-Ecole d'économie de Paris (Postprint) from HAL

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: 2025-10
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Published in Journal of the European Economic Association, 2025, 23 (5), pp.1743-1772. ⟨10.1093/jeea/jvaf006⟩

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Related works:
Journal Article: Rethinking the Informal Economy and the Hugo Effect (2025)
Working Paper: Rethinking the Informal Economy and the Hugo Effect (2025)
Working Paper: Rethinking the Informal Economy and the Hugo Effect (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:pseptp:halshs-05031208

DOI: 10.1093/jeea/jvaf006

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