Re-estimation of the size of underground economy in European countries: MIMIC approach

Abstract

This paper investigates the size and evaluation of the underground economy in European Countries. This estimation made on the basis of multiple indicators and multiple causes model that are based on latent variable namely the MIMIC model approach. As parallel to work of Dell’Anno et al. (2007), this study includes tax burden via direct tax; indirect tax; and social security contributions; as well as unemployment rate; and selfemployment rates as a cause variables of the model, while uses Real GDP growth rate and working force participation rate as indicator variables of the model. The result confirms the success of policy makers on reducing underground economy. © International Economic Society.