Measuring the Informal Economy in the Caucasus and Central Asia
May 31, 2013
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Summary
This study estimates the size of the informal economy, and the relative contribution of each underlying factor, for the Caucasus and Central Asia countries in 2008. Using a Multiple Indicator-Multiple Cause model, we find that a burdensome tax system, rigid labor market, low institutional quality, and excessive regulation in financial and products markets are determinant factors in explaining the size of the informal economy, which ranges from 26 percent of GDP in Kyrgyz Republic to around 35 percent of GDP in Armenia. Furthermore, the results show that higher levels of informality increase the levels of self employment and the percentage of currency held outside the banking system.
Subject: Commodity markets, Economic sectors, Financial markets, Informal economy, Labor, Self-employment, Tax incidence, Tax policy
Keywords: Caucasus and Central Asia, Central Asia and the Caucasus, Commodity markets, financial market, Informal economy, informal economy for the Caucasus and Central Asia, informal economy size, informal economy variance, latent variable, product market restriction, regulation, Self-employment, size of the informal economy, Tax incidence, unobserved informal economy, WP
Pages:
18
Volume:
2013
DOI:
Issue:
137
Series:
Working Paper No. 2013/137
Stock No:
WPIEA2013137
ISBN:
9781484331613
ISSN:
1018-5941
