The Shadow Economy of Italy and other OECD Countries: What Do We Know?

Abstract

Various methods to estimate the size of the shadow economy are discussed and the results of the shadow economy of 21 OECD countries are presented. Then the specific case of Italy is investigated and the aim of this section is to produce an estimate of the Italian shadow economy with the MIMIC (Multiple Indicators and Multiple Causes) method. The procedure to obtain the underground economy as a share of official GDP is presented. The paper ends with some general conclusions about the reliability of the model approach and the efficacy of economic policies to reduce the shadow economy.

Can We? Administrative Limits Revisited

“…Could such changes be achieved in ways that would be relatively invisible to most people, on the long‐standing principle of at‐source income or sales taxation, or would they require major administratively directed controls on individual behavior of a kind and on a scale hardly seen in Western developed countries since the 1940s? If the latter, given that estimates of the size of the “black” or “shadow” economy (outside the reach of taxation or regulation) even in wealthy countries average 15 percent or so of gross domestic product for the OECD (Organisation for Economic Co‐operation and Development) states (see Dell’Anno and Schneider 2003; Schneider and Enste 2002) and show little sign of declining, just how much compliance would be enough for those targets to be achieved? Could sufficient compliance be achieved by light‐touch approaches following the “nudge” principle (Thaler and Sunstein 2008), or would it take a state with the sort of extreme social intrusiveness represented by, say, Calvin’s Geneva or Mao’s Cultural Revolution China?…”

The Non‐Observed Economy in Portugal: The monetary model and the MIMIC model

“…However, it has some drawbacks as the possible overestimation of the shadow economy. Other concerns have been exposed by looking at the MIMIC approach and its applications (e.g., Bajada & Schneider, 2005;Breusch, 2016;Dell'Anno & Schneider, 2003;Feige, 2016;Hashimzade & Heady, 2016;Hassen et al, 2016;Schneider, 2016). As stated by Breusch (2005b) one of the most prominent critics of the MIMIC approach, the sensitivity to the change of units of measurement must be considered, since different results can be obtained by measuring the variables in different units.…”

The shadow economy: a relevant factor for investment decisions in selected European Union countries

“…According to Enste and Schneider (1998) direct methods are, in theory, reliable and simple, but in practice, less reliable and expensive. 8 Indirect methods sometimes require not very realistic assumptions. The indirect methods measure the "traces" left by the underground economy in the official statistics.…”

“…The size of the 7 It is based on a dynamic multiple-indicators multiple-causes model, which includes a measurement model linking observable indicators to the size of the shadow economy and a structural equation model that links causes and consequences. 8 It is possible that people who evade taxes do not want to respond honestly to surveys even though confidentiality is guaranteed. shadow economy can be estimated through the discrepancy between national expenditure and income statistics, the discrepancy between the official and the actual labour force, the transactions approach, the currency demand approach, the electricity consumption method.…”