published in: European Journal of Political Economy, 2005, 21 (3), 598-642
Using various statistical procedures, estimates about the size of the shadow economy in 110
developing, transition and OECD countries are presented. The average size of the shadow
economy (in percent of official GDP) over 1999-2000 in developing countries is 41%, in
transition countries 38% and in OECD countries 18.0%. An increasing burden of taxation and
social security contributions combined with rising state regulatory activities are the driving
forces for the growth and size of the shadow economy. If the shadow economy increases by
one percent the annual growth rate of the “official” GDP of a developing country (of a
industrialized and/or transition country) decreases by 0.6% (increases by 0.8 and 1.0
respectively).
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