Rethinking the Informal Economy and the Hugo Effect

Francesco Pappadà and Kenneth Rogoff

No 31963, NBER Working Papers from National Bureau of Economic Research, Inc

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 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”.

JEL-codes: E26 E32 H26 O17 (search for similar items in EconPapers)
Date: 2023-12
New Economics Papers: this item is included in nep-eec, nep-eur, nep-ifn and nep-iue
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