## 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 Europe East Europe Mean 15,59 24,85 Variance 35,27 27,39 n 17 11 Mean Difference 0 df 23 t Stat -4,33 P(T<=t) single-tail 0,00 t critical single-tail 1,71 P(T<=t) two-tail 0,00 t critical two-tail 2,07

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 Eurozone Non Eurozone Mean 17,33 22,16 Variance 43,71 55,43 n 17 11 Mean Difference 0 df 20 t Stat -1,75 P(T<=t) single-tail 0,05 t critical single-tail 1,72 P(T<=t) two-tail 0,10 t critical two-tail 2,09

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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