Measuring the unobservable: estimating informal economy by a structural equation modeling approach

Abstract This article proposes a new approach to estimate the informal economy (IE) by using Structural Equation Modeling (SEM). Using Monte Carlo Simulation and empirical analysis of Italian IE as an example, we provide general conclusions on reliability limitations SEM IE. Practical guidelines how apply this method way deal with most problematic issues are provided. We conclude that may be effectively used, complementary National Accounting Approach, adjust official statistics for presence