The shadow economy beyond European public governance

The purpose of this paper is to try to analyze the Shadow Economy (SE) and its determinants by means of the Structural Equation Model (SEM)-Partial Least Squares (PLS). The overall topic of the SEM-PLS approach is controversially debated in the literature. In the past decades, the focus on the SE has increased and the range in the estimated size of this phenomenon is very divergent. By examining the effects of a set of indicators, economic theory often emphasizes the need for lower taxes and less regulation, but many other factors, such as administrative quality, are frequently neglected. Policy implications are discussed. Estimates for the SE as a percentage of GDP can be calculated and European countries are clustered according to the obtained results. 2013 Elsevier B.V. All rights reserved. * Corresponding author. Tel.: +39 081 5474266; fax: +39 0815474904. E-mail addresses: [email protected], [email protected] (P. Mazzocchi). 1 NOE refers to all productive activities that may not be captured in the basic data sources used for compiling NA (Eurostat, 2012). The following activities are included: underground production, informal activities (including those undertaken by households for their own final use), illegal activities and the related statistical estimation problems (OECD, 2002; UNECE, 2008).