Does the shadow economy pose a challenge to economic and public finance policy? - Some preliminary findings

Abstract

The intensive discussion about the development of the shadow economy and illicit employment that has been taking place over the last ten years has been far from conclusive. On the one hand, it has been argued that illicit employment is partially responsible for such problems as increasing unemployment in the official sector, growing public debt and national pension deficit. On the other hand, it has been claimed that illicit employment is the individual's escape from unjust and burdensome restraints imposed by the government. Thus, the migration into the shadow employment is seen as a reaction to excessive constraints created by public institutions and bureaucracy.81 Furthermore, as argued by sociologists and economists, the shadow economy generates a considerable share of social welfare in many countries. For example, the shadow economy is estimated to account for well above 25% of Italy's official GDP. © 2007 Springer-Verlag Berlin Heidelberg.