Shadow Economy: Estimation Methods, Problems, Results and Open questions

• Main Authors: Schneider Friedrich, Buehn Andreas
• Format: Article
• Language: English
• Published: De Gruyter 2018-06-01
• Series: Open Economics
• Subjects: shadow economy estimates; mimic approach; methods to estimate the shadow economy; advantages and disadvantages of the methods; mimic-method; calibration procedure; light intensity approach
• Online Access: https://doi.org/10.1515/openec-2017-0001

This paper presents various methods used for estimating the size of the shadow economy. Each method is evaluated and its strengths and weaknesses are discussed, as well as results each method yields. The purpose of the paper is threefold: Firstly, to demonstrate that there is no single infallible method for estimating the size and development of the shadow economy and results can differ significantly between different approaches. The MIMIC approach, discussed in greater detail, is often used due to its flexibility. Secondly, the paper discusses the very definition of the shadow economy and factors contributing to its growth. Finally, latest estimations of the size of the shadow economies of 143 countries over the period 1996 to 2014 are presented.