Nonlinearity Between the Shadow Economy and Level of Development

March 1, 2019

Preview Citation

Format: Chicago

Dong Frank Wu, and Friedrich Schneider. Nonlinearity Between the Shadow Economy and Level of Development, (USA: International Monetary Fund, 2019) accessed October 6, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

This paper is the first attempt to directly explore the long-run nonlinear relationship between the shadow economy and level of development. Using a dataset of 158 countries over the period from 1996 to 2015, our results reveal a robust U-shaped relationship between the shadow economy size and GDP per capita. Our results imply that the shadow economy tends to increase when economic development surpasses a given threshold or at least does not disappear. Our findings suggest that special attention should be given to the country’s level of development when designing policies to tackle issues related to the shadow economy.

Subject: Economic sectors, Education, Inflation, Informal economy, Labor, Prices, Tax incidence, Tax policy

Keywords: Causes of the shadow economy, GDP per capita, Global, Inflation, Informal economy, Labor market, Level of Development, Nonlinearity, Shadow Economy, Shadow economy data, Shadow economy driver, Shadow economy size, Shadow economy while, Shadow economy's determinant, Size of the shadow economy, Tax incidence, WP

Publication Details

Pages:

29
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/048
Stock No:

WPIEA2019048
ISBN:

9781484399613
ISSN:

1018-5941

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