Policy highlights:

  • A study conducted in 110 developing, transition and OECD countries shows the average size (in % of official GDP) of shadow economies is 41% in developing countries, 38 % in transition countries and 18% in OECD countries.
  • The main driving forces for the growth of shadow economies are the tax burden, the intensity of government regulation, and social security contributions.
  • The consequences of such growth are particularly disastrous for developing countries, where a 1% growth rate results in a 0.6% decrease in the ‘official’ GDP.
  • Given the fact that government actions are the main reason for people to engage in shadow economic activities, governments that want to effectively curb their national shadow economy should first analyse the consequences of their own policy decisions.
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