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Article
Publication date: 8 January 2018

Wai Weng Yap, Tamat Sarmidi, Abu Hassan Shaari and Fathin Faizah Said

The purpose of this paper is to investigate the nonlinear relationship between shadow economy and income inequality and determine whether the size of shadow economy can…

Abstract

Purpose

The purpose of this paper is to investigate the nonlinear relationship between shadow economy and income inequality and determine whether the size of shadow economy can influence the level of income inequality.

Design/methodology/approach

Both parametric (panel OLS) and nonparametric/semiparametric regression suggested by Robinson (1988) will be used to capture the dynamic nonlinear relationship between these variables using unbalanced panel data of 154 countries from 2000 to 2007. Additionally, the relationship between income inequality and shadow economy on both developed and developing countries will be analyzed and compared.

Findings

First, semiparametric analysis and nonparametric analysis are significantly different than parametric analysis and better in nonlinear analysis between income inequality and shadow economy. Second, income inequality and shadow economy resemble an inverted-N relationship. Third, the relationship between income inequality and shadow economy is different in developed countries (OECD countries) and developing countries, where OECD countries have similar inverted-N relationship as before. However, for developing countries, income inequality and shadow economy show an inverted-U relationship, similar to the original Kuznets hypothesis.

Practical implications

This study suggests that there is a possible trade-off between income inequality and shadow economy and helps policy makers in solving both problems effectively.

Originality/value

Despite the growing importance of income inequality and shadow economy, literature linking the two variables is scarce. To the best of the authors’ knowledge, there is no literature that nonlinearly links these two variables. Furthermore, the dynamics of the relationship between these two variables in developed countries and developing countries will be explored as well.

Details

Journal of Economic Studies, vol. 45 no. 1
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 2 March 2021

James Temitope Dada, Folorunsho Monsur Ajide and Akinwumi Sharimakin

This study investigates the effect of shadow economy on environmental pollution and the role of institutional quality in moderating the impact in African countries between…

Abstract

Purpose

This study investigates the effect of shadow economy on environmental pollution and the role of institutional quality in moderating the impact in African countries between 1991 and 2015.

Design/methodology/approach

The study employs three pollutant variables namely: carbon dioxide emissions per capita, methane emission and nitrous oxide emission as robustness check. Also, battery of methodologies; ordinary least squares, fixed effects and system generalised method of moments are used to drive out the conclusions of this study.

Findings

The findings reveal that shadow economy and institutional quality contribute significantly to environmental pollution in Africa. Further, the interactive effect of shadow economy and institutional quality worsens environmental quality in the region. This reveals that weak institutional quality recorded in the region increases the level of shadow economy, thereby intensifying environmental pollution.

Practical implications

The study concludes that weak institutional framework in the region reinforces shadow economy and environmental pollution. Hence, findings from this study can help policymakers in the region to better understand the role of institutional quality in reducing shadow economy and environmental pollution.

Originality/value

This study enriches one’s understanding on the role of institutional quality in the relationship between environmental quality and shadow economy in African context. It investigates the direct and indirect impact of institutions and shadow economy on environmental quality. The study also uses three different robust variables to measure environmental pollution (carbon dioxide (CO2) emissions per capita, methane emission and nitrous oxide emission) for sensitivity analysis.

Details

World Journal of Science, Technology and Sustainable Development, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2042-5945

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Taxing the Hard-to-tax: Lessons from Theory and Practice
Type: Book
ISBN: 978-1-84950-828-5

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Article
Publication date: 2 November 2015

Travis Wiseman

Using state-level data on productive and unproductive entrepreneurship, shadow economy size, and public official corruption, the purpose of this paper is to examine…

Abstract

Purpose

Using state-level data on productive and unproductive entrepreneurship, shadow economy size, and public official corruption, the purpose of this paper is to examine whether formal sector productive (unproductive) entrepreneurial activity is associated with lower (higher) levels of informal economic activity.

Design/methodology/approach

Additionally, the author aims to connect US state-level entrepreneurship, shadow economy size, and corruption by asking whether corruption affects entrepreneurial outcomes primarily through its effects on the shadow economy. The author contends that if this is the case, then estimates of corruption should serve as a good instrument for shadow economy size in regressions on formal sector entrepreneurial outcomes.

Findings

Results from OLS regressions suggest that shadow economy size shares a strong, negative (positive), and statistically significant relationship with productive (unproductive) entrepreneurship. These results are fairly robust to GMM estimation. Additionally, the author finds that corruption is a strong instrument for shadow economy size; one for which validity cannot be rejected in regressions on productive, and net entrepreneurship scores.

Research limitations/implications

However, the author cannot safely assert that the author finds evidence of the shadow economy serving as a primary channel through which corruption affects observed entrepreneurial outcomes. Failure to reject validity of the corruption instrument is, at best, suggestive of the primacy of the entrepreneurial choice between formal and informal sector participation.

Originality/value

This study, to the author’s knowledge, is the first to attempt “connecting the dots” between entrepreneurship, corruption, and shadow economy size.

Details

Journal of Entrepreneurship and Public Policy, vol. 4 no. 3
Type: Research Article
ISSN: 2045-2101

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Article
Publication date: 13 April 2010

Heli Virta

The purpose of this paper is to examine the impact of corruption on the size of the shadow economy in countries that differ with respect to income level or geographical…

Abstract

Purpose

The purpose of this paper is to examine the impact of corruption on the size of the shadow economy in countries that differ with respect to income level or geographical location. The underlying idea is that the primary manifestation of corruption might be associated with country characteristics and that different types of corruption might have different consequences.

Design/methodology/approach

IV regressions and bootstrapping are applied to a cross‐section of countries to show that geographical location of a country impacts on the relationship between corruption and the shadow economy. An interaction term of the level of corruption and geography is used to capture the differences in the types and consequences of corruption between countries.

Findings

Corruption does not seem to affect the size of the shadow economy outside the tropics. Instead, the higher the tropical area fraction of a country, the more a certain level of corruption enlarges the unofficial economy. Moreover, corruption and the shadow economy seem to be substitutes in the tropics.

Research limitations/implications

Different types of corruption may have different consequences.

Originality/value

Unlike most of the previous literature, the paper accounts for the fact that some corrupt practices tend to be commonplace in some parts of the world, while other countries may be plagued by other types of corruption. Therefore, the consequences of corruption might also differ.

Details

International Journal of Development Issues, vol. 9 no. 1
Type: Research Article
ISSN: 1446-8956

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Book part
Publication date: 15 November 2018

Aristidis Bitzenis and Vasileios Vlachos

A report of the International Labour Organization on undeclared work in Greece refers to failures of formal institutions which contribute to the asymmetry between state…

Abstract

A report of the International Labour Organization on undeclared work in Greece refers to failures of formal institutions which contribute to the asymmetry between state and civic morality. The particular asymmetry is explored through the context of tax morale, which is one of the major determinants of the shadow economy. Although several papers have been published on the Greek shadow economy, tax morale in Greece has not been adequately explored. This research aims to investigate the effect of the economic downturn on the factors determining the level of tax morale through primary data from a European Union-funded research project on the Greek shadow economy. The findings provide policy orientations toward transferring activities from the shadow to the official economy, a goal which is part of Europe 2020 strategy.

Details

Advances in Taxation
Type: Book
ISBN: 978-1-78756-416-9

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Abstract

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Societal Entrepreneurship and Competitiveness
Type: Book
ISBN: 978-1-83867-471-7

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Article
Publication date: 8 August 2016

Colin C Williams and Ioana Alexandra Horodnic

Grounded in an emergent recognition that those people in formal employment conduct the vast majority of work in the shadow economy, the purpose of this paper is to…

Abstract

Purpose

Grounded in an emergent recognition that those people in formal employment conduct the vast majority of work in the shadow economy, the purpose of this paper is to evaluate for the first time the degree to which shadow work is conducted by those in formal jobs and the characteristics of those in formal employment who participate in the shadow economy.

Design/methodology/approach

To do this, the authors report a 2007 survey of participation in the shadow economy involving 26,659 face-to-face interviews conducted in 27 European Union (EU) member states.

Findings

The finding is that in the EU, the formally employed undertake a disproportionate share of work in the shadow economy. Analysing the characteristics of the employed most likely to work in the shadow economy, however, it is those who benefit least from the formal economy, namely, younger unmarried men and on lower incomes living in rural areas, working in the construction sector and in small firms.

Research limitations/implications

The outcome is a tentative call for recognition that although people in formal employment conduct the vast majority of work in the shadow economy, these are mostly particular vulnerable and weaker groups of the formally employed. Whether similar findings prevail at other spatial scales and in other global regions now needs investigating.

Practical implications

This survey displays the need for policy not to target the unemployed but particular groups of the formally employed.

Originality/value

The first extensive evaluation of the extent to which shadow work is conducted by those in formal jobs and the characteristics of those in formal employment who participate in the shadow economy.

Details

Journal of Economic Studies, vol. 43 no. 3
Type: Research Article
ISSN: 0144-3585

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Article
Publication date: 5 January 2015

Friedrich Schneider, Konrad Raczkowski and Bogdan Mróz

The main purpose of this paper is to explore size of the shadow economy of 31 European Countries in 2014 and size of the shadow economy of 28 European Union countries over…

Abstract

Purpose

The main purpose of this paper is to explore size of the shadow economy of 31 European Countries in 2014 and size of the shadow economy of 28 European Union countries over 2003-2014 (in per cent of official GDP). An additional objective is to identify tax evasion, as the problem of all the EU countries, answering the questions how better combat the tax fraud.

Design/methodology/approach

Estimates of the shadow economy for all 28 European Union countries and other three countries from Europe, i.e. Norway, Switzerland and Turkey – MIMIC method was applied.

Findings

The average size of the shadow economy in 28 EU countries was 22.6 per cent in 2003 and decreased to 18.6 per cent (of official GDP) in 2014. We also consider the most important driving forces of the shadow economy. The biggest ones are with 14.6 per cent unemployment and self-employment, followed by tax morale with 14.5 per cent and GDP growth with 14.3 per cent. The proportion of tax evasion (accounting for indirect taxation and self-employment activities) was on average 4.2 per cent (of official GDP) in Poland, 1.9 per cent in Germany and 2.9 per cent in the Czech Republic.

Research limitations/implications

The MIMIC statistics do not address a large part of the wholly illegal economy (of typically criminal nature) and, accordingly, it is not an absolute magnitude of the whole unofficial economy. However, it does not seem that other, alternative, methods of measuring the unofficial economy are better in individual terms.

Practical implications

Current statistical research should lead to practical acceptance in the framework of need for developing better organizational & legal ways for multi-level governance within the European Union, leading to effective methods of counteracting – in particular intra-Union fraud. In addition, the presentation of a review of typology of the main theories and studies regarding the unofficial economy aspects relating to tax evasion constitutes a practical review of the pursued research areas.

Social implications

Safeguarding the national economy as a whole, by seeking ways of reducing the scope of shadow economy.

Originality/value

Both regarding presentation of the latest shadow economy estimates and typology of its main studies and theories.

Details

Journal of Money Laundering Control, vol. 18 no. 1
Type: Research Article
ISSN: 1368-5201

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Article
Publication date: 2 October 2017

Georgios L. Vousinas

This paper aims to bring into surface two major socioeconomic problems of Greece, tax evasion and shadow economy.

Abstract

Purpose

This paper aims to bring into surface two major socioeconomic problems of Greece, tax evasion and shadow economy.

Design/methodology/approach

It examines the determinants and the factors that led to the formation and expansion of tax evasion and subsequently of black economy. Empirical data and related research are used to provide a clearer view of the existing situation.

Findings

Tax evasion and shadow economy are proved to remain two of the most severe problems that torture Greek economy. The factors that contribute the most to the formation of these phenomena are the lack of tax awareness, the tax burden, the structure of the tax system, the role of the state, the level of approvement of public authority, self-employment, unemployment and the level of organization of the economy. Except from the negative characteristics, positive ones are also identified, and certain policies are suggested so as to combat tax evasion and black economy.

Originality/value

The paper highlights two major issues that constitute the deadly weakness of the Greek economy, providing a holistic view of the current situation, identifying the roots of the problem and suggesting specific measures.

Details

Journal of Money Laundering Control, vol. 20 no. 4
Type: Research Article
ISSN: 1368-5201

Keywords

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