Nonlinearity Between the Shadow Economy and Level of Development

Author/Editor:

Dong Frank Wu ; Friedrich Schneider

Publication Date:

March 1, 2019

Electronic Access:

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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.

Series:

Working Paper No. 19/48

Subject:

English

Publication Date:

March 1, 2019

ISBN/ISSN:

9781484399613/1018-5941

Stock No:

WPIEA2019048

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

29

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