Shadow economy .

INTRODUCTION As corruption and shadow economic activities are facts of life around the world, most societies attempt to control these activities through various measures like punishment, prosecution, economic growth or education. To gather information about the extent of corruption and the shadow economy and its relationship or who is engaged in corrupt and/or underground activities, the frequency with which these activities are occurring and magnitude of them, is crucial for making effective and efficient decisions regarding the allocations of a country’s resources in this area. Unfortunately, it is very difficult to get accurate information about the relationship between corruption and shadow economy activities on the goods and labour market, because all individuals engaged in these activities wish not to be identified. The literature about the “shadow”, “underground”, “informal”, “second”, “cash-” or “parallel”, economy is increasing. Various topics, on how to measure it, its causes, its effect on the official economy are analyzed. See for example, survey type publications by Frey and Pommerehne (1984); Thomas (1992); Belev (2003); Pedersen (2003) and so on. Gathering statistics about who is active in the shadow economy activities, the frequency with which underground activities occur and the magnitude of these activities, is crucial for making effective and efficient decisions regarding allocating resources in this area. Obviously it is difficult to get accurate information about underground or shadow economy activities because individuals engaged in these activities wish to remain unidentified. Hence, estimation of shadow economy activities can be considered as a scientific passion for knowing the unknowable. Research aim: to show shadow economies as a complex phenomenon, present to an important extent even in the most industrialized and developed economies.

INTRODUCTION 3 1. Defining the Shadow Economy 4 2. The Main Causes of the Shadow Economy 5 3. The effects of the shadow economy on the official economy 6 SUMMARY AND CONCLUSIONS 9 REFERENCES 10

1. Alm, James (1996), Explaining Tax Compliance, in: Pozo, Susan (ed.), Exploring the Underground Economy. Kalamazoo, Michigan, pp. 103–127. 2. Asea, Patrick K. (1996), The Informal Sector: Baby or Bath Water? Carnegie-Rochester Conference Series on Public Policy 45., pp. 163–171. 3. Belev, B. (2003). The Informal Economy in the EU Accession Countries: Size, Scope, Trends and Challenges to the Process of EU Enlargement. Center for Study of Democracy, Sofia. 4. Dell’Anno, R. (2003). Estimating the Shadow Economy in Italy: A Structural Equation Approach. Discussion Paper, Department of Economics and Statistics, University of Salerno. 5. Frey, B. S. and Pommerehne, W. (1984). The Hidden Economy: State and Prospect for Measurement. Review of Income and Wealth, 30(1): 1–23. 6. Houston, John F., (1987), “Estimating the Size and Implications of the Underground Economy,” Working Paper 87–9, Federal Reserve Bank of Philadelphia, Philadelphia (N. J.). 7. Pedersen, S. (2003). The Shadow Economy in Germany, Great Britain and Scandinavia: A Measurement Based on Questionnaire Service. Study No. 10, The Rockwoll Foundation Research Unit, Copenhagen. 8. Smith, P. (1994). Assessing the Size of the Underground Economy: The Statistics Canada Perspectives. Canadian Economic Observer, Catalogue No.: 11-010, 3.16-33, at 3.18.Spiro, Peter S. (1993): “Evidence of a Post-GST Increase in the Underground Economy;” Canadian Tax Journal/ Revue Fiscale Canadienne, , 41(2): 247–258. 9. Thomas, J. J. (1992). Informal Economic Activity. LSE, Handbooks in Economics, London: Harvester Wheatsheaf.