Drivers of the underground economy around the millienium: A long term look for the United States

Authors

Rajeev K. Goel, Illinois State University
James W. Saunoris, Eastern Michigan University
Friedrich Schneider, Johannes Kepler University of Linz

Document Type

Report or White Paper

Publication Date

2017

Department/School

Economics

Abstract

This paper provides a long term analysis of the determinants of the shadow economy. Using data for the United States over the years we examine economic and political factors driving the underground sector. Results show that among the economic factors, greater economic prosperity increased the shadow sector, while greater openness to trade and a bigger government reduced it, with the effects of inflation being statistically insignificant. Politically, the efficacy of presidential vetoes and the effect of congressional party homogeneity are statistically insignificant. Further, the U.S. shadow economy increased during both world wars, but was lower during the great depression. However, in the short run, the relationship between the shadow economy and its determinants exhibit some remarkable differences.

Comments

J. W. Saunoris is a faculty member in EMU's Department of Economics.

Recommended Citation

Goel, R. K., Saunoris, J. W., & Schneider, F. G. (2017). Drivers of the underground economy around the millienium: A long term look for the United States. https://doi.org/10.2139/ssrn.2998966