Some Remarks on the Shadow Economy in Mediterranean and EU Countries Using a Structural Model

It is common knowledge that in the past decades, the focus on the Shadow Economy (SE) has increased following more economists’ approaches and the range in the estimated size of this phenomenon is very divergent. The comprehensive coverage of economic production is important in order to ensure a good quality in National Accounts and exhaustive estimates of the Gross Domestic Product (GDP). Several models have already been proposed in order to test the statistical significance of some of the most relevant determinants and to analyze the relationship between the growth rate of the GDP and SE. In this paper, two alternative approaches have been provided to validate the official SE estimates as far as they are available. The purpose of using these two models is to try to estimate the size of the SE by means of the latent variable method (Zizza, 2002) and the structural equation model (Dell’Anno, 2003; Ruge, 2010) and to attempt to cluster the Mediterranean countries according to the obtained results. The SE as a hidden factor is difficult to measure, making it necessary to use multiple observable indicators to approximate its extent. This paper examines the SE determinants observing each country as a specific case. The authors focus some experiences of the United Nation Economic Commission for Europe. The paper ends with some political measures which need to be implemented carefully in order to monitor the control mechanisms related to the SE.