The hard shadow of the Greek economy: new estimates of the size of the underground economy and its fiscal impact |
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| Authors: | Wolfram Berger Michael Pickhardt Athanassios Pitsoulis Aloys Prinz Jordi Sardà |
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| Institution: | 1. Institute of Business and Economics, Brandenburg University of Technology Cottbus, 03013 Cottbus, Germany;2. GATE (CNRS UMR 5824), Lyon, Francebergerw@tu-cottbus.de;4. Institute of Economics and Information Sciences, University of Hildesheim, Hildesheim, Germany;5. Institute of Public Economics II, University of Münster, 48143 Münster, Germany;6. Department d’Economia i CREIP, Universitat Rovira i Virgili, 43204 Reus, Spain |
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| Abstract: | This article presents new estimates of the Greek underground economy and explores the link between the underground economy and aggregate debt. We show that the Greek underground economy has been underestimated heavily and has been on a rising trend again since Greece adopted the Euro. We also present evidence that the size of the underground economy is positively related to the debt-to-GDP ratio, implying that fighting the underground economy is also conducive to financial and macroeconomic stability. Our results suggest that for our sample of 11 EMU member countries, the loss of the inflation tax as an economic policy instrument had drastic consequences. While the underground economy did not have a statistically significant impact on aggregate debt before the introduction of the Euro, it has pushed up the debt-to-GDP ratio in our sample since. |
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| Keywords: | underground economy MCDR approach inflation tax debt-to-GDP ratio debt crisis |
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