This paper offers a new approach to measuring the size of the informal economy based on VAT data for the European Union. Although data intensive, our EVADE measure is simpler and more transparent than existing measures. EVADE also shows more variation across countries of Europe than earlier...

The shadow (underground) economy plays a major role in many countries. People evade taxes and regulations by working in the shadow economy or by employing people illegally. On the one hand, this unregulated economic activity can result in reduced tax revenue and public goods and services, lower...

This paper analyzes the role of labor market institutions in explaining the development of shadow economies in European countries. The analysis uses several alternative measures of the shadow sector, and examines the effects of labor institutions on the shadow sector in two specific regions: new...