According to the “Focus” magazine approximately 13 million Germans contributed to
the shadow economy in 2006! The estimations of Friedrich Schneider, one
distinguished expert in this area, showed that the extent of the shadow economy in
Germany in 2007 was about 349 billion Euros, which equals to 14.7 percent of
Germany’s gross domestic product (GDP)!
The scope of the present assignment is to provide an all-embracing and critical
overview of the shadow economy, to introduce the main causes, effects and dimensions
of the shadow economy and to find answer the question how shadow activities can be
limited.
In this context the hidden sector can be defined as all economic activities that are not
recorded in the national accounts, but normally should be a part of them and be included
in GDP. These actions can be on the one hand absolutely legal in the self-sufficient
economy like do-it-your-self, neighbourhood help, but on the other hand completely
illegal activities like dealing with drugs and smuggling as well as legal activities, which
are illegally being carried out, e.g. tax evasion or illicit work.
The main and most vital reasons for the existence and constant growth of the shadow
economy are high taxes or social security contributions burden and the intensity of state
regulations. But also sociological-psychological causes like subjective perception of tax
burden, falling society values, a bad tax morale and declining loyalty towards the state
can have a tremendous impact on the size of the hidden economy.
But is the shadow economy a threat to the official sector? At first glance, the question
whether the shadow economy is dangerous might appear strange. However, there are
several controversial opinions about this matter. The analysis of the effects caused by
the existence and the growth of the shadow economy is a contradictory topic. The
present assignment characterizes the main negative, e.g. distortion of official economic statistics, lower tax revenues and positive effects, e.g. price stabilization, creation of
new jobs of the shadow economy and their influence on the national economy.
Following this, the study presents the most popular methods of measuring the shadow
economy: direct methods that are mostly based on surveys, the indirect ones that
attempt to quantify shadow economic activities by seeking traces left in the official
sector and the so-called model approach, which tries to determine the hidden economy
by ...
Inhaltsverzeichnis (Table of Contents)
- EXECUTIVE SUMMARY
- TABLE OF CONTENTS
- LIST OF ABBREVIATIONS.
- LIST OF FIGURES
- INTRODUCTION.
- WHAT IS THE SHADOW ECONOMY
- An Approach to Define the Shadow Economy.
- Theoretical Explanatory Models
- Model of time allocation
- Model of tax evasion
- MAIN CAUSES FOR THE SHADOW ECONOMY
- Increase of Tax and Social Security Contribution Burdens.
- Density of Governmental Regulations
- Unemployment and Reduction of Official Working Hours...
- Subjective Perception of Tax and Social Security Contributions burden.......
- Tax Morale.....
- EFFECTS OF THE SHADOW ECONOMY
- THE DIMENSION OF THE SHADOW ECONOMY.
- Methods to Estimate the Size of the Shadow Economy
- Direct approaches
- Sample surveys
- Tax audit method...
- Indirect approaches
- Discrepancy between national expenditure and income statistics .....
- Discrepancy between official and actual labour force.
- The transactions approach.
- The currency demand approach
- The physical input (electricity consumption) method..
- The model approach.........
- Direct approaches
- The Size of the Shadow Economy in the 21 OECD Countries .............
- The Size of the Shadow Economy in Germany
- Methods to Estimate the Size of the Shadow Economy
- MEASURE FOR LIMITING THE SHADOW ECONOMY
- Cost-benefit Analysis of Combating Black Economy in Germany by Stricter State Control
- General Economic Policy Recommendations
- Reduction of tax and social security burdens
- Reduction of density of regulations
- Allocation of transfer payments.
- Consolidation of the public sector........
- CONCLUSION............
- BIBLIOGRAPHY
- ITM-CHECKLIST.
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This assignment provides a critical overview of the shadow economy, exploring its causes, effects, and dimensions. The study seeks to answer the question of how shadow activities can be limited. The focus is on understanding the hidden sector, which includes both legal and illegal economic activities that are not recorded in national accounts. The study analyzes the main causes of the shadow economy, including high taxes, social security contributions, and government regulations. It also investigates the consequences of the shadow economy, both positive and negative, on the official sector. The assignment further delves into various methods for measuring the shadow economy and assesses its extent in both Germany and other OECD countries. Finally, the study proposes measures to limit the shadow economy through economic policy recommendations and reforms.
- Causes of the Shadow Economy
- Effects of the Shadow Economy
- Measuring the Shadow Economy
- The Shadow Economy in Germany and OECD Countries
- Policy Recommendations to Limit the Shadow Economy
Zusammenfassung der Kapitel (Chapter Summaries)
- Introduction: Introduces the topic of the shadow economy and its significance, particularly in the context of Germany. It highlights the growing concern regarding the hidden sector's influence on the official economy.
- What is the Shadow Economy?: This chapter defines the shadow economy, encompassing legal and illegal activities not captured in official statistics. It outlines various theoretical explanatory models, including the time allocation model and the tax evasion model, to understand the motivations behind shadow economic activities.
- Main Causes for the Shadow Economy: This section examines the key factors driving the growth of the shadow economy. It discusses the impact of high tax burdens, stringent government regulations, unemployment, and individual perceptions of taxation on the size of the hidden sector.
- Effects of the Shadow Economy: This chapter analyzes the consequences of the shadow economy on the official economy, exploring both positive and negative effects. It addresses the distortion of economic statistics, tax revenue losses, and the potential for price stabilization and job creation in the shadow sector.
- The Dimension of the Shadow Economy: This chapter explores different methods for measuring the size of the shadow economy, including direct approaches (surveys, tax audits), indirect approaches (discrepancies in data), and model approaches. It further presents an overview of the estimated size of the shadow economy in 21 OECD countries and specifically in Germany.
- Measure for Limiting the Shadow Economy: This section focuses on strategies for reducing the size of the shadow economy. It analyzes the costs and benefits of combating the black economy through stricter state control and explores general economic policy recommendations. The chapter suggests reducing tax burdens, simplifying regulations, and implementing targeted transfer payments to mitigate the factors driving shadow economic activities.
Schlüsselwörter (Keywords)
The central keywords and focus topics of this study include: shadow economy, hidden economy, underground economy, black economy, tax evasion, social security contributions, government regulations, economic statistics, OECD countries, Germany, economic policy, measurement methods, and policy recommendations.
- Quote paper
- Dennis Ducke (Author), Gabor Ivanyi (Author), Mark Kan (Author), 2008, The Shadow Economy – A Critical Analysis, Munich, GRIN Verlag, https://www.grin.com/document/141912