Nonlinearity Between the Shadow Economy and Level of Development
IMF Working Papers, March 1, 2019
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- Nonlinearity Between the Shadow Economy and Level of Development
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Bibliographic details
- Authors: Dong Frank Wu, Friedrich Schneider
- Published: March 1, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781484399613.001
Key findings
- 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, the results reveal a robust U-shaped relationship between the shadow economy size and GDP per capita.
- The results imply that the shadow economy tends to increase when economic development surpasses a given threshold or at least does not disappear.
Data and scope
- Dataset: 158 countries.
- Time period covered: from 1996 to 2015.
- Paper length: 29 pages.
- Publication series: Working Paper No. 2019/048 (Volume: 2019, Issue: 048).
- DOI: https://doi.org/10.5089/9781484399613.001
- ISBN: 9781484399613
- ISSN: 1018-5941
Subjects and keywords (as identified by authors)
- 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
Policy implications and recommendations
- Policy design to tackle issues related to the shadow economy should pay special attention to the country’s level of development.
- Because the shadow economy exhibits a U-shaped relationship with GDP per capita, interventions may need to be tailored to where a country sits relative to the identified development threshold.
IMF Working Paper by Dong Frank Wu and Friedrich Schneider, March 1, 2019.
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