Andreas Buehn

• Head of Department Public Management
• Head of Department at University of Cooperative Education Bautzen

This paper presents an empirical analysis of the relationship between fiscal illusion and the shadow economy for 104 countries over the period 1989–2009. We argue that both unobservable phenomena are closely linked to each other, as the creation of a fiscal illusion may be helpful if governments want to control shadow economic activities. Using a M...

This paper presents various methods for estimating the size of the shadow economy and discusses their strengths and weaknesses. The purpose of the paper is threefold: Firstly, it demonstrates that no ideal method exists to estimate the size and development of the shadow economy. Because of its flexibility, the MIMIC method used to get macro-estimat...

The concerns about tax haven activity shown by leading nations originate not only from a sense of injustice caused by the fact that tax havens allow multi-billion dollar firms such as Google, Starbucks and Apple to pay only a few pennies in taxes but the notion that tax haven activity fuels international financial instability through various avenue...

Using panel data for more than 80 countries from 1999-2007 this paper studies the marginal effect of education on the shadow economy, particularly considering the quality of institutions. The results show that higher levels of education fuel the shadow economy in an environment of weak political institutions.

We model illegal immigration across the US-Mexico border into Arizona, California, and Texas as an unobservable variable applying a Multiple Indicators Multiple Causes model. Using state-level data from 1985 to 2004, we test the incentives and deterrents influencing illegal immigration. Better labor market conditions in a US state and worse in Mexi...

Environmental quality and climate change have been discussed prominently as urgent problems that – due to air pollution – produce severe consequences affecting the everyday life of millions of people. Using a Multiple Indicators Multiple Causes (MIMIC) model, we calculate a new index of air pollution and provide a ranking for 122 countries for ever...

We study the determinants of country default risk by applying a Multiple Indicators Multiple Causes (MIMIC) model. This accounts for the fact that country default risk is an unobservable variable. Whereas existing (regression-based) approaches typically use only one of several possible country default risk indicators as the dependent variable, the...

For the first time we develop a time series of tax evasion (in % of official GDP) for 38 OECD countries over the period 1999 to 2010 based on MIMIC model estimations of the shadow economy. Considering indirect taxation and self-employment as the driving forces of tax evasion, we observe a declining trend of tax evasion between 1999 and 2010 for all...

In this paper the main focus lies on 'driving forces' of the development and size of the shadow economy in highly developed 39 OECD countries. The influential factors on the shadow economy are tax policies and state regulation, which, if they rise, increase the shadow economy, but also other factors like economic ones (unemployment) are considered,...

In recent years, the causes and consequences of smuggling have attracted much attention in the media, mainly thanks to academics and policy makers. While a large body of literature is devoted to theoretical aspects of smuggling, only few empirical studies deal with this complex phenomenon. This paper presents estimates from a Multiple Indicators Mu...

We analyse the impact that political business cycles and party preferences have on smuggling illegal goods across the US–Mexico border during the years 1980–2004. We find that smuggling is significantly reduced prior to Congressional elections – but only if the incumbent President is Republican.

Despite the increasing number of contributions to the literature, regional variations of the shadow economy have been hardly studied. This article analyses the determinants and derives the size of the shadow economy on the district level in Germany. I find that an inferior local labour market and the burden of taxation significantly contribute to t...

This paper is a first attempt to study the impact of enforcement on the shadow economy. Using a MIMIC model, we find that a higher share of sub-national government employment and the aspiration of public employees to follow rules significantly deter shadow economic activities. Our results also confirm previous findings: Increased burdens of taxatio...

This paper studies the impact of decentralization on the shadow economy. We argue that decentralization may decrease the size of the shadow economy mainly through two transmission channels: Decentralization enhancing public sector efficiency (efficiency effect), and decentralization reducing the distance between bureaucrats and economic agents, whi...

We analyse the determinants of trade misinvoicing using data on 86 countries from 1980 to 2005. In a simple microeconomic framework, we derive the determinants of four different types of trade misinvoicing taking into account that only the financial incentives determine whether and how much exports/imports to underinvoice or overinvoice, whereas th...

From a theoretical point of view, the relationship between corruption and the shadow economy is ambiguous: They can either From a theoretical point of view, the relationship between corruption and the shadow economy is ambiguous: They can either be substitutes or complements. This paper contributes to this debate by using a structural equation mode...

While much is known about the shadow economies around the world, do-it-yourself activities (DIY) have attracted less attention. Consequently, the relationship between the shadow economy and DIY activities is almost unexplored. Our article fills this gap. Using appropriate determinants, we estimate a structural equation mod el for the shadow economy...

Environmental quality and climate change have long attracted attention in policy debates. Recently, air quality has emerged on the policy agenda. We calculate a new index of air quality using CO2 and SO2 emissions per capita as indicators and provide a ranking for 122 countries from 1985 to 2005. The empirical analysis supports the EKC hypothesis a...

This paper presents estimations of the shadow economies for 162 countries, including developing, Eastern European, Central Asian, and high income OECD countries over 1999 to 2006/2007. According to our estimations, the weighted average size of the shadow economy (as a percentage of 'official' GDP) in Sub-Saharan Africa is 37.6%, in Europe and Centr...

This paper empirically studies the impact of decentralization on the shadow economy. From a theoretical point of view, the impact of decentralization on the shadow economy is ambiguous. Decentralization may directly decrease activities in the unofficial economy e.g. through increased efficiency of public good provision, enhanced tax morale and/or h...

This paper presents estimations of the shadow economies for 162 countries, including developing Eastern European, Central Asian, and high-income countries over the period 1999 to 2006/2007. According to the estimations, the average size of the shadow economy (as a percentage of "official" gross domestic product) in 2006 in 98 developing countries i...

We study the determinants of country default risk by applying a Multiple Indicators Multiple Causes (MIMIC) approach. This accounts for the fact that country default risk is an unobservable variable. Whereas existing (regression-based) approaches typically use only one of several possible country default risk indicators as the dependent variable, t...

This paper presents a consistent structural equation (SEM) estimate of the size and development of the shadow economy and of do-it-yourself (DIY) activities in Germany from 1970 to 2005. By 2005, they reached a level of about 17% and 5% of official GDP. While the shadow economy has regularly increased over the years, DIY activities - though quite s...

We study the smuggling of illegal and legal goods across the U.S.-Mexico border from 1975 to 2004. Using a Multiple Indicators Multiple Causes (MIMIC) model we test the microeconomic determinants of both smuggling types and reveal their trends. We find that illegal goods smuggling decreased from $116 billion in 1984 to $27 billion in 2004 as a resu...

The relationship between corruption and the shadow economy is not clear. Theoretically, they either substitute or complement each other -exhibiting either a negative or positive relationship. This paper -using a structural equation model with two latent variables - extracts information on various dimensions of corruption and the shadow economy to c...

In den vergangenen Jahren hat sich das Verständnis der Volkswirtschaftslehre gewandelt. Bis in die siebziger Jahre dominierte die Wirtschaftspolitik, die sich auch als Berater außerhalb der Universitäten verstand. Dann schwappte von den USA die Mathematisierung der Volkswirtschaftslehre nach Deutschland über und ergriff ganze Universitäten. Das Fac...

The analysis of economic loss attributed to the shadow economy has attracted much attention in recent years by both academics and policy makers. Often, multiple indicators multiple causes (MIMIC) models are applied to time series data estimating the size and development of the shadow economy for a particular country. This type of model derives info...

Die Ausstattung der Hochschulen in Sachsen ist gut, so die gefühlte Wahrnehmung der breiten Öffentlichkeit. Dieses Bauchgefühl lässt sich bei einem ersten Blick zunächst auch mit einer eindrucksvollen Zahl belegen: gemessen an der Wirtschaftskraft lag die Ausstattung der sächsischen Hochschulen im Jahr 2004 40 % über dem Bundesdurchschnitt. Befragt...

Estimations of the shadow economies for 120 countries, including developing, Eastern Europe and Central Asian and high income OECD countries over 1999 to 2006 are presented. The average size of the shadow economy (as a percent of "official" GDP) in 2004/05 in 76 developing countries is 35.5%, in 19 Eastern and Central Asian countries 36.7% and in 2...

This paper presents the first MIMIC (multiple indicator multiple causes) model estimate of the size and development of the shadow economy and of do-it-yourself (DIY) activities in Germany from 1970 to 2005. By 2005, they reached a level of about 17% and 4.94%. While the shadow economy has regularly increased over the years, DIY activities – though...

We analyze the determinants of trade misinvoicing using data on 86 countries from 1980 to 2005. In a simple microeconomic framework we derive the determinants of four different types of trade misinvoicing taking into account that only the financial incentives determine whether and how much exports/imports to underinvoice or overinvoice, whereas the...

Taking into account the fact that recorded output understates actual output might be important to improve econometric models and for better policy advice. Using the shadow economy data presented in Buehn et al. (2009) we provide some new results on modeling the demand for money in Germany. We find that the elasticity for money is much smaller with...

From a theoretical point of view, the relationship between corruption and the shadow economy is ambiguous: they can either be substitutes or complements. This paper contributes to this debate by using a structural equation model with two latent variables to extract information on various dimensions of corruption and the shadow economy. This paper a...

This paper presents the first MIMIC (multiple indicator multiple causes) model estimate of the size and development of the shadow economy and of do-it-yourself (DIY) activities in Germany from 1970 to 2005. By 2005, they reached a level of about 17% and 4.94%. While the shadow economy has regularly increased over the years, DIY activities - though...

The dissertation “Informal Economic Activities” takes a comprehensive approach to the informal economy by studying traditional shadow economic activities, household DIY activities, and the smuggling of illegal and legal goods. Chapter 2 analyzes shadow economic and DIY activities and presents a dual estimation for the development of both types of i...