Non-Observed Economy vs. the Shadow Economy in the EU: The Accuracy of Measurements Methods and Estimates revisited

Abstract

International audience ; The Non-Observed Economy (NOE) vs. the shadow economy remains a controversial issue. Illegal, underground and informal activities encapsulated within the NOE/shadow economy display large discrepancies throughout the European Union. First, a tractable taxonomy of the aforementioned market activities is designed according to both definition and scope, whereupon a wide spectrum of estimation methods applies. Second, direct measurements provided by tax audits, household informal expenditure and labour market surveys provide piecemeal information regarding such unobserved activities; a cross-section survey issued from a unique questionnaire applied to all European countries in 2007 and again in 2013 deserves special attention. Third, indirect macroeconomic measurements are drawn from discrepancies on the market for goods and services on the money market and on the labour market, whereas the DYMIMIC (dynamic multiple indicators-multiple causes) method carves the trends of the shadow economy (hereafter SE). Fourth, the estimates of the EU shadow economy drawn from the DYMIMIC model are compared with the assessment of the NOE according to national accounts adjustments; the relevance of major determinants of the NOE/shadow economy-tax burden as well as the characteristics of the informal workforce, is discussed.