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Measuring the shadow economy using company managers

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  • Putniņš, Tālis J.
  • Sauka, Arnis

Abstract

This study develops a method that uses surveys of company managers to measure the size of a shadow economy. Our method is based on the premise that company managers are the most likely to know how much business income and wages go unreported due to their unique position in dealing with both of these types of income. We use a range of survey design features to maximize the truthfulness of responses. Our method combines estimates of misreported business income, unregistered or hidden employees, and unreported wages, to arrive at an estimate of the size of a shadow economy as a percentage of GDP. This approach differs from most other studies of shadow economies, which largely focus on using macroindicators. We illustrate the application of our method to three new EU member countries. We also analyze the factors that influence companies’ participation in the shadow economy.

Suggested Citation

  • Putniņš, Tālis J. & Sauka, Arnis, 2015. "Measuring the shadow economy using company managers," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 471-490.
    • Handle: RePEc:eee:jcecon:v:43:y:2015:i:2:p:471-490
    DOI: 10.1016/j.jce.2014.04.001
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    More about this item

    Keywords

    Shadow economy; Tax evasion; Company managers; New EU members; GDP;
    All these keywords.

    JEL classification:

    • E26 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Informal Economy; Underground Economy
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • P24 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies - - - National Income, Product, and Expenditure; Money; Inflation
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm

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