Analysis of the shadow economy in the Spanish regions

Abstract

The aim of this paper is to analyze the shadow economy in the Spanish Autonomous Communities. In so doing, we employ the Currency Demand Approach to analyze the 1987–2010 period. The results show that the size of the shadow economy ranges from 18% to 30% of regional GDP and an approximate mean value of 25% for the entire territory. The Personal Income Tax has the greatest impact on the shadow economy. By region, Andalucía and the Islas Canarias have the highest values for the shadow economy, whereas Madrid presents the lowest value. We extract some implications for the public authorities.