Empirical Models for Analysis of the Black Economy

  • Abstract:

    Despite the high number of paper analyzing the Black Economy, this is a difficult field to study. This paper analyzes several models used to evaluate the size of the black economy. Unlike the direct model approaches, as the currency demand approach, that are used to evaluate the black economy, empirical models offer an opportunity to analyze the black economy and corruption, as well as their interconnection. Empirical models study a wide range of causes and results of these two phenomena observed in the macroeconomic level. These models build structural equation model for corruption and shadow economy. The equation is based on the hypothesis that reducing corruption enhances the quality of the economy which is reflected immediately in the shadow economy and makes us understand that economic policies would be ineffective if the relationship between corruption and the shadow economy is they are not addressed. The structural equation model (SEM) gives us the necessary empirical equation to follow the connection between the two phenomena by presenting them as two latent variables and examines their interrelationship with co – variation structures. The structural equation model consists of two parts: a Structural equation model and Measurement model. MIMIC model is a variation of SEM and is used to evaluate the size of the Black Economy.