Measuring the Informal Economy in the Caucasus and Central Asia
19 Pages Posted: 21 Jun 2013
Date Written: May 2013
This study estimates the size of the informal economy, and the relative contribution of each underlying factor, for the Caucasus and Central Asia countries in 2008. Using a Multiple Indicator-Multiple Cause model, we find that a burdensome tax system, rigid labor market, low institutional quality, and excessive regulation in financial and products markets are determinant factors in explaining the size of the informal economy, which ranges from 26 percent of GDP in Kyrgyz Republic to around 35 percent of GDP in Armenia. Furthermore, the results show that higher levels of informality increase the levels of self employment and the percentage of currency held outside the banking system.
Keywords: Shadow economy, Central Asia, Tax burdens, Labor markets, Economic models, Cross country analysis, Informal economy, latent variable, Caucasus and Central Asia., labor market, employment, labor force, self employment, total employment, labor force participation, labor market regulations, labor market institutions, unemployment, rigid labor market, collective bargaining, job creation, labor regulation, employment outcomes, labor contracts, labor market rigidities, total labor force, jobs, labor market rigidity, labor organization, rigid labor markets, restrictive labor market regulations, labor markets, labor regulations
JEL Classification: E26, O17, O50, H11, H20, J51
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