Shadow Economies in Highly Developed OECD Countries: What are the Driving Forces?

Abstract

The main focus of this paper lies on the of the development and size of the shadow economy in 39 highly developed OECD countries. The most influential factors on the shadow economy are tax policies and state regulation, which, if rising, increase the shadow economy, though other, economic factors like unemployment are important, too. Specifically, it is shown that the main driving forces of the size and development of the shad- ow economy are unemployment, self-employment and the tax burden, which impact the shad- ow economies in these 30 OECD countries to a different degree. Between 1999 and 2010 un- employment and self-employment have on average the largest relative impact (14.6%), fol- lowed by tax morale (14.5%), GDP growth (14.3%), business freedom (14.2%) and indirect taxes (14.1%).