Analyzing the Determinants of the Shadow Economy With a “Separate Approach”. An Application of the Relationship Between Inequality and the Shadow Economy

•We suggest a “separate” approach to analyze the determinants of the shadow economy.•We examine the relationship between inequality and the shadow economy.•We find that an increase in inequality increases the shadow economy ratio.•Inequality mainly reduces the official GDP rather than increasing the...

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Veröffentlicht in:World development 2016-08, Vol.84, p.342-356
1. Verfasser: Dell’Anno, Roberto
Format: Artikel
Sprache:eng
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Zusammenfassung:•We suggest a “separate” approach to analyze the determinants of the shadow economy.•We examine the relationship between inequality and the shadow economy.•We find that an increase in inequality increases the shadow economy ratio.•Inequality mainly reduces the official GDP rather than increasing the shadow economy. This paper suggests a “separate” approach to analyze the determinants of the shadow economy (SE). It is applied to investigate the relationship between inequality and the SE on a cross-section of 118 countries. We disentangle the effect of inequality on the SE ratio by estimating both direct and indirect effects on both the numerator and denominator of the ratio separately. We find that an increase in inequality increases the SE ratio. This positive correlation is primarily due to a reduction in the official GDP rather than an increase in the SE.
ISSN:0305-750X
1873-5991
DOI:10.1016/j.worlddev.2015.08.026