The temporal-spatial evolution characteristics of shadow economy in China: Empirical evidence using prefecture level data

Abstract

In this paper, we assessed size of the shadow economy for 198 prefecture-level cities in China from the years 2000 to 2018 using a method called MIMIC, which stands for multiple indicators and multiple causes. The goal of the paper is to investigate temporal-spatial characteristics of evolution in the shadow economy. The results manifest that percentage of the total commerce that is hidden from view all over China first increases and then decreases over time, with an average of 17.08 %. The increase in taxation will likely trigger a massive expansion in the business conducted in the shadows, while the increase in government regulation and self-employment rates all have produced negative effects on it. The locations that have a significant amount of unreported economic activity are basically centralized in southeast coastal area, southwest area, northeast of China, and three provinces of central China. Moreover, the difference in shadow economy between resource-based and non-resource-based cities tends to widen gradually after 2013. Cities being too large or too small may face a high proportion of shadow economy.