Explaining the Shadow Economy in Europe: Size, Causes and Policy Options

Author/Editor:

Ben Kelmanson ; Koralai Kirabaeva ; Leandro Medina ; Borislava Mircheva ; Jason Weiss

Publication Date:

December 13, 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 examines the drivers, and reestimates the size of shadow economies in Europe, with a focus on the emerging economies, and recommends policies to increase formality. The size of shadow economies declined across Europe in recent years but remains significant, especially in Eastern Europe. In the emerging European economies, the key determinants of shadow economy size are regulatory quality, government effectiveness, and human capital. The paper argues that a comprehensive package of reforms, focused on country-specific drivers, is needed to successfully combat the shadow economy. The menu of policies most relevant for Europe’s emerging economies include: reducing regulatory and administrative burdens, promoting transparency and improving government effectiveness, as well as improving tax compliance, automating procedures, and promoting electronic payments.

Series:

Working Paper No. 19/278

Subject:

English

Publication Date:

December 13, 2019

ISBN/ISSN:

9781513520698/1018-5941

Stock No:

WPIEA2019278

Format:

Paper

Pages:

29

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