Kempten Autumn Talks

Title of the lecture

“Causes of the shadow economy in transition economies”


Prof. Dr. Péter Vékás

Corvinus University Budapest

Budapest, Hungary

Time of the lecture

November 05, 2020, 17:30 o’clock ETC


90 minutes (including discussion)


Due to its hidden nature, measuring the shadow economy is a challenging task. Concealing incomes leads to negative externalities: market distortions and loss of tax revenues cause immense damage all over the world. The expression ‘transition economies’ refers to the former Eastern bloc of European countries, which are in a peculiar situation: transformation from planned economies to market economies only happened a few decades ago, thus the corporate sector and the institutional background do not have such deep traditions as in the former West. We use panel data of several macro-indicators. Our dependent variable is the portion of the shadow economy relative to the GDP, for which we use estimates of the International Monetary Fund (IMF), and we incorporate region-specific effects by interactions. We apply static and dynamic panel linear regressions to reveal how variables such as socio-economic development, institutional background, income inequalities and tax rates impact the size of the shadow economy in the world in general and transition economies in particular.