Explaining the Shadow Economy in Europe: Size, Causes and Policy Options
IMF Working Papers, December 13, 2019
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- Explaining the Shadow Economy in Europe: Size, Causes and Policy Options
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Bibliographic details
- Authors: Ben Kelmanson, Koralai Kirabaeva, Leandro Medina, Jason Weiss
- Published: December 13, 2019
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513520698.001
Summary and scope
- Examines drivers and reestimates the size of shadow economies in Europe, with a focus on the emerging economies.
- Argues that a comprehensive package of reforms, focused on country-specific drivers, is needed to successfully combat the shadow economy.
- Emphasizes policies to increase formality across a menu tailored to Europe’s emerging economies.
Key findings on size and trends
- The size of shadow economies declined across Europe in recent years but remains significant, especially in Eastern Europe.
Determinants in emerging European economies
- The key determinants of shadow economy size identified are:
- regulatory quality
- government effectiveness
- human capital
Policy recommendations and menu of reforms
- A comprehensive, country-specific package of reforms is recommended.
- The menu of policies most relevant for Europe’s emerging economies includes:
- reducing regulatory and administrative burdens
- promoting transparency and improving government effectiveness
- improving tax compliance
- automating procedures
- promoting electronic payments
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- Working Paper