World Economics - Insight , Analysis and Data

World Economics - Insight , Analysis and Data

The Shadow Economy and Shadow Economy Labour Force: What do we (not) know?

Friedrich Schneider - November 2011

In this paper the main focus lies on the development and the size of the shadow economy and of undeclared work (or shadow economy labour force) in OECD, developing and transition countries. Besides informal employment in the rural and non-rural sector also other measures of informal employment like the share of employees not covered by social security, own account workers or unpaid family workers are shown. The most influential factors on the shadow economy and/or shadow labour force are tax policies and state regulation, which, if they rise, increase both. Furthermore the discussion of the recent literature underlines that economic opportunities, the overall situation on the labour market, and unemployment are crucial for an understanding of the dynamics of the shadow economy and especially the shadow labour force.

1.  INTRODUCTION

This paper is mainly concerned with measuring the size and development of the shadow economy, black activities and undeclared work. Knowledge about the shadow economy and the shadow labour force is necessary to fighting tax evasion, an important policy goal in OECD countries, but this subject is not considered in this paper because too many additional aspects would be involved[1]. Tax morale or experimental studies on tax compliance are also beyond the scope of this paper[2] which is organized as follows: Section 2 presents theoretical considerations about the definition and measurement of the shadow economy and discusses also the main factors determining its size. In Section 3 the empirical results of the size and development of the shadow economy are discussed. In section 4 a detailed discussion of the size and development of the shadow economy labour force and its various aspects are presented. In section 5 the interaction between the shadow economy and unemployment is analyzed. In section 6 the adjustments of shadow economy measures in national accounts are presented. Finally section 7 concludes.

2.  SOME THEORETICAL CONSIDERATIONS ABOUT THE SHADOW ECONOMY

2.1.

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