Nonlinearity Between the Shadow Economy and Level of Development

Download or read book Nonlinearity Between the Shadow Economy and Level of Development written by Dong Frank Wu and published by International Monetary Fund. This book was released on 2019-03-01 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper is the first attempt to directly explore the long-run nonlinear relationship between the shadow economy and level of development. Using a dataset of 158 countries over the period from 1996 to 2015, our results reveal a robust U-shaped relationship between the shadow economy size and GDP per capita. Our results imply that the shadow economy tends to increase when economic development surpasses a given threshold or at least does not disappear. Our findings suggest that special attention should be given to the country’s level of development when designing policies to tackle issues related to the shadow economy.