Abstract
During the last few years, growing concern about the phenomenon of the shadow (or hidden) economy has arisen; as a consequence, the shadow economy has received increasing attention by the public, politicians, and social scientists.1 For industrial countries, there are at least two reasons why politicians have become concerned about the growth and size of the shadow economy:
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(1)
If an increase in the size of the shadow economy is mainly caused by a rising tax burden, any increase in tax rates may lead to a further shift from official to inofficial activities and, hence, to a further decrease in tax revenues.
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(2)
If — due to the existence of the shadow economy — some individuals have a second source of income and spend at least part of this income in the “official” economy, any change in the size of the shadow economy directly affects the development of the official economy.
We are indebted to the participants of the Vienna conference on the political economy of progressive taxation, and particularly to D. Bos, J. Brunner and J. Falkinger for helpful discussions. Remaining errors and shortcomings are our responsibility.
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Schneider, F., Hofreither, M.F., Neck, R. (1989). The Consequences of a Changing Shadow Economy for the “Official” Economy: Some Empirical Results for Austria. In: Bös, D., Felderer, B. (eds) The Political Economy of Progressive Taxation. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-74999-5_14
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