29 Ocak 2013 Salı

The Shadow Economy and A Study of Country Differentiation Subject to the Location and Eurozone Membership

Shadow Economy is one of the most popular subjects in Economic literature. Since it is one of the most important drivers of tax income, it has been numerously studied by many researchers due to its direct impact on the fiscal policy. A very brief definiton of shadow economy is given as follows according to the businessdictionary.com

"the part of an economy involving goods and services which are paid for in cash, and therefore not declared for tax."

In this study, we will try to make simple statistical analyses in order to show whether the size of the shadow economy differs according the location of a country or not. This means that if the country is placed in somewhere in Europe, does it affect the size of the shadow economy?

Afterwards, we have tried to understand if there is a difference between Eurozone countries and the others regarding their shadow economy figures.

The figures of European Countries are as follows. The figures show the share of the shadow economy in the GDP of that country as of year end 2012.

Countries
Shadow Economy
Countries
Shadow Economy
Countries
Shadow Economy
Austria
7,6
Luxemburg
8,2
Hungary
22,5
Belgium
16,8
Malta
25,3
Latvia
26,1
Cyprus
25,6
Netherlands
9,5
Lithuania
28,5
Estonia
28,2
Portugal
19,4
Poland
24,4
Finland
13,3
Slovenia
23,6
Romania
29,1
France
10,8
Spain
19,2
Sweden
14,3
Germany
13,3
Slovakia
15,5
United Kingdom
10,1
Greece
24,0
Bulgaria
31,9
Turkey
27,5
Ireland
12,7
Czech Republic
16,0


Italy
21,6
Denmark
13,4



For the first analysis we have made a t-test (unequal variances assumed) in order to understand whether there is a difference between the East European countries and the others. The results of the test is given below. Since p-value for two tail is very close to 0%, we can say that there is a significant difference between Europe and East Europe Countries.

t-Test: Unequal Variances Assumed
 EuropeEast Europe
Mean15,5924,85
Variance35,2727,39
n1711
Mean Difference0
df23
t Stat-4,33
P(T<=t) single-tail0,00
t critical single-tail1,71
P(T<=t) two-tail0,00
t critical two-tail2,07 



For the second analysis we have made another t-test (unequal variances assumed) in order to understand whether there is a difference between the Eurozone countries and the others. The results of the test is given below. Since p-value for two tail is very close to 10%, we can say that there is not a significant difference between Europe and East Europe Countries.

t-Test: Unequal Variances Assumed
 EurozoneNon Eurozone
Mean17,3322,16
Variance43,7155,43
n1711
Mean Difference0
df20
t Stat-1,75
P(T<=t) single-tail0,05
t critical single-tail1,72
P(T<=t) two-tail0,10
t critical two-tail2,09 

As a result, the Euro zone countries were not able to implement more registered economy compared to the others in Europe. However, the shadow economy is seen to be worse when the location of the country gets more Eastern in Europe.

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