The Informal Revolution

Draft – Not for publication – Comments Acknowledged (helgueraeduardo@gmail.
com)
THE INFORMAL REVOLUTION
INFORMALITY
Size (Empirical Evidence)

and Reinterpretational Redescription of the Informal
Sector:
Global Reinformalization as a Solution not as a

Problem
ESTUDIO HELGUERA
Eduardo Helguera
DIRECTOR
helgueraeduardo@gmail.com
1
Numbers, notes, emphasis & italics are mine.
Draft – Not for publication – Comments Acknowledged (helgueraeduardo@gmail.com)
THE INFORMAL REVOLUTION

A meta-analytical compilation, a study of studies, in search of cross connections, serendipitously
stumbling sometimes during the exploration with a few Eureka moments when some apparently
unconnected data can be bolted together and evolve into a pattern.
The State: A vestigial piece of empirically falsified hypothesis;

dysfunctional theoretical junk, failed thought experiment that should have
been interred long ago in an intellectual coffin (and yet controls roughly
62% of the World’s GDP, 39% of world jobs, and authoritarian tyrannies
control ⅓ of world population)
State Idea: Myth, Idol, Fetish, Hoax, Hocus Pocus, Superstition,

Hipostasia, Delusion, Fiction, Totem, Scam, Meme, Thought experiment,
Hypothetical construct, Fairytale, Cheat, Non-sequitur, Illusion,
Shibboleth, Legend, Fallacy, Unworkable Contraption, Hobgoblin, Mumbo
Jumbo.
Understanding the Depoliticization Process: An exploratory inquiry into

the structure of the roots, nature, growth and resilience of politicization
The impossibility of getting formal sector politicians to depoliticize
The Polycentric Alternative: Reaction: Depoliticization by Grassroots

creeping basically bloodless reinformalization. Size of the Informal Sector.
The Operators: Political gangs, Statolaters, kleptocrats, plunderers

(public choice).
Global Reinformalization: The process of disengagement of civil society

from formal control. The exit option. Secession.
Informality is the empirical connection with, underpinning, scaffold, corporization and

operativization of the polycentric / libertarian / anarcho-capitalist / spontaneous order theoretical
structure. (E.H.)
2
Abstract
People react1(see chart) and a grassroots rebellion is growing and winning the battle against domination, a rebellion
that is not bloody as the usual tax rebellions of yore (France, USA´s whisky rebellion, Germany) rebellions that
happened when the social pressure was not accepted and then the political system bursts at its seams (Maitland,
Berman, Kuhn, Laski).
Now people are using other tactics, tools and ingenuity and have created and use them to circumvent intervention,
difficulties, higher costs and all types of parasitical actions. Some tools are printed in appendix I.
Reality, however, shows us that people [62% of world’s jobs go unreported (Schneider, 2010) and 38% of world GDP
is informal, or operate in what analysts call the shadow economy.
Preface
After the description of what the State is, and what it is not; after going through the evolution of the idea of state
and government [pre-Socratic, Israel, Aristoteles, St. Thomas Aquinas…till Hobbes and all the followers (see chapters
on non sequiturs: Hobbes, Hume, Kant, Epstein, Madison, Fukuyama, Piketty)] and explaining the way people act (as
the Salamanca School, the Scottish Enlightenment, Polanyi, Hayek, Spooner, Paine, Jefferson, Rothbard, until we
arrive to the cluster of anarcho-capitalist thinkers of the recent decades Stringham, Childs, Barnett, Block, Higgs,
Boaz, Liggio, Casey and so many other bright guys that could see what the right conclusion was and could see clearly
where the status quaestionis stands.
The growth of informality is an empirical fact, which grows to be a social fact (Durkheim), and then a political fact
(disengagement) that has two branches of analysis: 1) the theoretical debate about the sustainability of a stateless
society 2) The empirical data that adds to the theoretical debate an interesting and helpful factual support.
Here we deal with the area of empirical measurements of the size of the informal, unreported economic sectors of
mankind.
Our contention goes one step further: from a quantitative nature of the “size of the shadow economy” and its
causes, consequences, direction of the official reactions to this phenomenon and many other analysis of this topic,
so many figures, data and analysis of comparative collateral relationships and correlations (corruption, democracy,
voice, accountability, attitudes of the population towards informality, etc.), we hypothesize that there is a qualitative
difference: this is a triumphant grassroots rebellion, a secession, an exit from the rigid organization that people
disengage from, consciously or unconsciously, an exit from the formal dominant group’s area of control arrived
through superincumbency and overstratification and now has become an autocracy through rotating majorities.
This is what we call the Informal Revolution, that is taking the shape and form of Global Reinformalization, and is
now explained by neuroscience and gametheoretical advances, behavioral, theories of corruption, correlative with
ethology and successful evolutionary results, and so many other advances in many scientific areas that we found
converge in a web of cross connections that explain how mankind operates and how intervention in the social fabric,
in the market, is similar to intervention in nature (Leda Cosmides´ insight 2)and how now environmentalists probably
could be enlisted to defend the unhampered functioning of the body politic´s spontaneous social system (E.H.´s
Corollary).
1
This is developed in more detailed form in the Introduction and Preface; and in the Analytical Index.
2
This flash of insight took place at lunch with the author at Galapagos’ September 2013 MPS meeting.
3
In this basically empirical section of the paper I am based in the charts and figures by researchers and scholars that
have studied and measured the world shadow economy, data on informality that were very helpful to sustain our
lifetime conjecture, raw feel and intuitive, visceral outlook of what informality really is.
In a general way, data3 confirm our conclusions, our view and redescription of informality as a solution, not as a
problem, and its growth at a higher rate than that of world GDP 4.
The conventional conclusion is similar to advocate that Auschwitz escaped or liberated by bribes prisoners should be
reimprisoned, or that it would have been wrong to bribe the S.S. sociopaths to get out, or whatever reason. Our
contrarian view is that the remaining prisoners should be liberated.
But the logically correct conclusion: should be, “Therefore people are showing and doing what they see as correct,
adequate and successful for the advance of welfare and satisfaction”, while conventional and differently premised
correct conclusions from the same starting point but different reference points advise governments 5 about “what
should they do to reformalize people that have exited” or disengaged. 6
Nevertheless all the available figures, empirical and anecdotal evidence and data about informality are very helpful
to shed some light about what people choose as a system of social organization.
And I only hope that I can help a couple of brilliant minds to grasp the reality that is going on out there. I mean the
brilliant minds and not the masses. They already discovered and operate the “simple system of liberty” and don´t
care if brilliant scholars grasp what is going on: the Informal stampede that is gathering momentum.
I have paid no poll-tax for six years. I was put into a jail once on this account, for one night; and, as I stood
considering the walls of solid stone, two or three feet thick, the door of wood and iron, a foot thick, and the iron
grating which strained the light, I could not help being struck with the foolishness of that institution which treated
me as if I were mere flesh and blood and bones, to be locked up.
Thus the State never intentionally confronts a man`s sense, intellectual or moral, but only his body, his sense. It is
not armed with superior wit or honesty, but with superior physical strength. I was not born to be forced. (Thoreau,
2007)
3
Data overall
4
As we can see in the chart (page x)
5
A neo-Macchiavellian approach
6
This situation opens an area of study of knowledge that exceeds the scope and depth of this paper: how from the same data
wholly different and opposing correct conclusions can be derived. This topic is explored in the Nonsequitur chapter (page xx).
4
Introduction
1. The reinformalization and de facto reprivatization processes that, in a particular way, we see in areas like trade,
health, social security, labor, patents, education or the treatment towards illegal substances can be observed in a
more general way through the analysis of what is known as the informal economy or the black economy, which
expresses the vitality of the society and its self-preservation dynamics as a manifestation of its natural expansion and
how its operations escape the arbitrary, distortive and permanent control of the state. The artifices of regulations
show to be weak and the expansion of the informal economy shows that societies unconsciously experience a
detachment process from politics which is in permanent evolution and growth: after strong attempts to control the
civil society’s life, the spontaneous impetus of creation and growth once more become evident. People work,
produce, trade and accumulate wealth disregarding everything that is political, they reinformalize, they return to a
state of cooperation, of interchange, of markets and of natural division of labor (not to the Hobbesian State of
Warre). They return to a situation that had been interrupted or affected in an artificial way. It is the return to free
society’s stable equilibrium after going through the unstable equilibrium of state’s interventionist regulation.
2. For example, Schneider, Buehn and Montenegro´s paper (Shadow economies around the world: novel
insights,accepted knowledge, and new estimates, published in 2010 by the World Bank) estimates, through MIMIC7
method, the size of the shadow (informal) economy in 162 countries around the world from 1999 to 2006/2007,
including developing, Eastern European, Central Asian, and high-income OECD countries. The authors’ obvious
conclusion is that “for all countries investigated the shadow economy has reached a remarkably large size (…)
However, equally important is the clear negative trend of the size of the shadow economy over time” and that
“increased burdens of taxation and regulation as well as the state of the “ofﬁcial” economy are important
determinants of the shadow economy.” and that its size is “strongly related to an increase in the tax and social
security burden, as well as the extension of the state’s regulatory activities. The increasing corruption also has a
positive impact on the growth of the shadow economy”.
3. Many interesting initial observations flow from this paper that has managed to provide us with estimates of the
size of the Informal sector that, because of their nature, remain out of the official scope and contribute to this
paper’s central thesis with hard facts about the expansion of the reinformalization process. The data by the different
scholars that studied and measured the phenomenon of the growth and size of the informal sector in different
regions of the world 8 can be seen as the macroeconomic reflection of the individual choice being made by billions of
persons daily. Their empirical data, along with other reports and increasing anecdotal evidence, can be seen as an
ex-post facto description of civil society’s massive disengagement from a dysfunctional and predatory model in a
growing reinformalization process already working efficiently.
However, this trend is not considered in the majority of the literature. For example in the 661 pages of his amazing
Public Choice III, prof. Mueller (1984) only mentions in seven pages informality or shadow economy, and in the lasts
two lines of his “amazingly complete and elegant survey” (Russell Hardin, S.U.) writes “but I even am optimistic that
7
See…
8
The more complete organized classifications of Shadow Economy or Informal Sector data and analysis can be seen in Part III,
Empirical Evidence
5
this research may someday help to improve the democratic institutions by which we govern ourselves” . As we can
observe the state meme is strongly entrenched and has become the starting and finishing point of a significant
majority of all mainstream political philosophy thinkers. These seem unable to even conceive, imagine, accept, grasp
or even see a different social organization system, for example polycentricity and free themselves of the theoretical
dead end of the State Idea Matrix Box / Case in which they are constrained, and shown where we freely start
advancing the exploration.
Polycentricity is not mentioned in the Encyclopӕdia Britannica nor in Contemporary Political Philosophy an
Anthology, (Goodin and Pettit, 2005 760 p.), of top political philosophers and it only has 21 words in Wikipedia. All
the papers start from the State Idea as can be seen in Skinner, Pateman, Habermas, Rolls, Nozick, Hart, Parfit and
Sen papers, to mention just a few of the authors of the forty-eight papers of the book, and wherever it is studied or
mentioned it is seen as a “problem” that needs a solution: to get the people back to the indisputable and sacred
taxable cage.
Informality: Exit and Exclusion

There are two main types of activist reactions to discontent with organizations to which one belongs or with which
one does business: either to voice one’s complaints, while continuing as a member or customer, in the hope of
improving matters’, or to exit from the organization, to take one’s business elsewhere 9– Albert O. Hirschman (1981,
p. 246)
(The Economist, July 19th, 2015)
In the literature we find the two categories of political philosophers: the graspers and the non-graspers (the vast
majority) of what is going on. I feel that the fixers, who want to fix the dysfunctional political apparatus, as opposed
to replacers, are nearly all non-graspers, and the replacers (basically informals) belong to the grasper category.
9
Correct, Common people understand this: fix it or leave it. (And even more: precisely the correct dilemma is fix it or replace it).
But the grand majority of scholars doesn’t grasp the principle. They continue debating inside the state idea matrix cage.
6
Acknowledgements
In our lifelong explorations of the informal sectors we were very lucky to have access to the work of researchers with
different measurement methods of informality, papers and research that, perhaps as an unintended consequence
for some scholars, opened and gave factual support to the spontaneous order and polycentricity hypotheses of the
organization of society. We selected the papers listed in references 10 and prepared an organized and classified
summary11 and syllabus12. Of this nucleus we finally arrive to the synthetic conclusions in section X page X where we
mention one by one what we consider the most important of our sources insights, findings, causations,
measurements and correlations13.
The debate (ex ante) about the theoretical sustainability of a purely voluntary system of social organization is the
first part of Stringham(2000) where he publishes many seminal debates
(Rothbard/Childs/Nozick/Stringham/Leeson/Holcombe) of purely theoretical discussion of the sustainability of State
idea. In the final chapters some historical examples of successful stateless societies are described. (Ireland, Iceland,
etc.).
“What all three 2013 Nobel laureates in Economics (Eugene Fama, Robert Shiller and Lars Peter Hansen) share is a
commitment to backing up theoretical work with rigorous empirical analysis.” 14
Hooke, anticipating the three 2013 Nobel Prize in Economics about deductive and inductive methods:
“The truth is, the Science of Nature has been already too long made only a work of the Brain and the Fancy: It is
now high time that it should return to the plainness and soundness of Observations on material and obvious
things.” (Robert Hooke, Micrographia, 1665)
We are working in this line.
As we say in the subtitle of this paper, we are adding factual support to the polycentric theoretical structure. E.H.
We dare boldly to state that the situation we faced is a scientific evolutionary step further from the Methodenstreit
which was the debate about method to acquire knowledge. This is not the question now we are facing (to
reinterpret Schneideirian et. al. data) we are in a more advanced stage that I dare dub the Kon Kluden Streit: from
the same data we can arrive to diverging conclusions 15. This first branch is how different conclusions can evolve from
the same data. Correct conclusions from correct data, but within a predetermined ideological and theoretical
framework and premises, and different starting points limits and goals which does not allow wert-frei conclusions,
although they are strictly correct.
10
Selected references.
11
Organized summary.
12
As we were finishing the first drafts of the Schneider syllabus professors Schneider & Buehn produced a paper ( Friedrich
Schneider and Andreas Buehn, Estimating the Size of the Shadow Economy: Methods, Problems and Open Questions, October
2013) that covers the methods of estimating the size of the Shadow Economy. The abstract explains: “This paper presents the
various methods to estimate the size of the shadow economy, their strengths and weaknesses. The purpose of the paper is
twofold. Firstly, it demonstrates that no ideal method to estimate the size and development of the shadow economy exists.
Because of its flexibility, the MIMIC method used to get macro-estimates of the size of the shadow economy is discussed in
greater detail. Secondly, the paper focuses on the definition and causal factors of the shadow economy as well as on a
comparison of the size of the shadow economy using different estimation methods.”
13
Perhaps our synthesizing work could lead to a final ultimate Grundsätze, as Menger would have probably called it, that should
include all his findings in one paper because anybody trying to study the Shadow Economy and the Informal Revolution should
be able to easily find all the organized and classified information in one place. We prepared this syllabus as a tool to understand
the informal universe in the different sections or chapters in which the Informal Revolution is divided in. We offer it to interested
people (scientists, general readers, students, journals, referees) in a systematized form.
14
The Economist. Oct 10th 2013. Methods for all moments. The Nobel prize in economics reveal how little we know about the
behavior of markets.
15
A classical example of Kon-Kluden Streit is given by the exactly opposite Hobbes’ and Rousseau’s conclusion, from the same
data, about the State of Nature or Law of the Jungle.
7
We can use the available bricks for an altogether different conclusion and exactly opposite targets; a different edifice
that opens doors in other directions.
Again, we feel indebted greatly to the Shadow Economy research of all the scholars whose multiple findings gives us
support and credible data for robust empirical conclusions in support of the theoretical sustainability of a
spontaneous, cooperative, voluntary, polycentric model, as opposed to a pyramidal, coercive organization of human
interactions or interpersonal relationships. It also gives empirical evidence of the present operability of a successful
civil society, perhaps a renovated body politic that has a 52% of employment (2.2 billion persons) in the Informal
Sector, and we are now measuring what percentage of the other 48% formal jobs is unreported or goes as perqs.
Perhaps a 35%? In that case unreported employment would grow to 68%, aprox. 2.6 billion persons would be
working in the informal sector of mankind.
The sociopolitical phenomenon should be looked at from a wert-frei, unpremised, unconstrained vantage point. Not
as politicians or public officials, or governments or opinators (as we show in the appendix: the O.I.T. paper, ads of
book, etc.) look at it. Scientists should look at the data and facts and arrive to correct conclusions. 16
This is what we labeled as the Kon-Kluden Streit.
Opening Comments
As with any social issue, it is very difficult to have all the data and to know all the different theories related to a given
subject. Even if you have all the data, it is very difficult to present them in a seamlessly ordered way. These limits are
stressed by the fact that nowadays any large study in social sciences has to cross over many scientific fields in which
the researcher cannot be a specialist.
We quote some authors in order to illustrate our point:
“In this endeavor it is unfortunately almost inevitable to give offense to the researcher who completely masters one
broad field, since it is, after all, impossible to be a specialist in all areas. But this does not convince me of the
scientific futility of such work.”17
MAX WEBER
“Of my book’s deficiencies and unevennesses, I am more keenly aware than anyone. The greater part and the most
grievous of them result from the fact that my path led straight across the demarcated technical areas of scores of
special disciplines. It was neither dilettante rashness nor cavalier arrogance that led me to overlook the perils of
such a procedure: the situation prevailing in historical science today compels us to cross the traditional boundary
lines of the special branches of scholarship for the simple reason that the problems that are actual and fruitful today
extend right through them. As nobody can be a universal specialist, each one is dependant upon the corrective and
complementary cooperation of different specialists. All that can be rightly demanded is that a scholar be a real
expert in one area at least, that starting out from there he bring the requisite perceptiveness to the other areas and,
finally, that he exercise the requisite self-control and accuracy. Such a necessity typically arises at turning points in
the history of ideas. When the situation is, after due filtering, becalmed and stabilized again, and when the new
viewpoints and methods are accorded recognition and acceptance, the domains of specialists can again be staked
out, fenced in, and left to them for undisturbed and leisurely concentrated revision.”
“Given the vastness of the area under study, obviously only broad outlines could be sketched here. From time to
time, however, I have gone into individual points in some detail in order to provide a precise verification of these
general lines. I have also taken issue with the specialist literature in part regarding important passages and in part
regarding some that were singled out accidentally. Such a procedure could be defined as a series of exploratory
drillings or probes; it is to be hoped that it will not only be considered fitting but enlivening as well.” 18
16
And if the results of research lead to undesired conclusions, as someone joked, “change, the data”.
17
WEBER, MAX: Economy and Society, Vol. 1, University of California Press, 1978. Introduction by GUENTHER ROTH, p. LXIV.
18
RÜSTOW, ALEXANDER: “Freedom and Domination”, Princeton University Press, 1980, p. xxiv-xxv.
8
ALEXANDER RÜSTOW
“Respect for the reader certainly demands that one present a tolerably finished product. But I doubt whether this
means that one ought to wait until one cannot hope to improve it further. At least where the problems are of the
kind on which many others are actively working, it would even appear to be an overestimate of one’s own
importance if one delayed publication until one was certain that one could not improve anything” 19
FRIEDRICH VON HAYEK
If these scientific heavyweights could say this we feel authorized to present this untidy and uneven outline of our
main findings in this previously not very explored territory.
We are aware that it will be difficult to install the reinformalization issue in the mainstream of analysis. Think tanks,
scholars, universities, foundation, sponsors, do not seem to grasp the tremendous strength, significance and
importance of the shadow economy phenomenon.
I contend that at least a 50% of funds, time, conferences, books, papers should be allocated to the study of what the
masses have adopted, and what they have rejected as dysfunctional. But, until now, no way. Preaching to the choir
stands fast; meanwhile, the informal stampede and creative and effective depoliticization strategies grow and hold
the high ground20.
Karl Marx could see only “the anarchy of capitalist production,” not the tremendous prosperity produced by the
unplanned order that Adam Smith seventy-five years earlier had called “the simple system of natural liberty.”
Echoing and refuting Marx a century later, Ludwig von Mises wrote, “Production is anarchistic”—and it is precisely
that unplanned, competitive process that generates economic growth.
Spontaneous order is not just the market. Libertarian scholars point to law, language, customs, and money as other
important institutions that evolved without any central direction—in the words of Adam Smith’s Scottish
contemporary Adam Ferguson, they are “the result of human action, but not the execution of any human design.”
Carl Menger asked one of the most important questions in social science: “How can it be that institutions which
serve the common welfare and are extremely significant for its development come into being without a common will
directed toward establishing them?” That is the question that interested Adam Smith, Thomas Paine, Herbert
Spencer, and F. A. Hayek.
The French Physiocrats of the eighteenth century expressed the concept of spontaneous order in their famous
slogan, “Laissez-faire, laissez-passer, le monde va de lui-meme” (“Let us do, leave us alone, the world runs by itself”).
Adam Smith argued that:
Little else is requisite to carry a State to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and
a tolerable administration of justice; all the rest being brought about by the natural course of things. All governments which
thwart this natural course, which force things into another channel, or which endeavor to arrest the progress of society at a
particular point, are unnatural, and to support themselves are obliged to be oppressive and tyrannical.
(David Boaz, The Libertarian Reader, 1996)
Why do people exit/secede/disengage from the formal system?

The first obvious reason is because they don’t condone the predatory/parasitical political system (tax burden, see
schneiderisms).
19
VON HAYEK, FRIEDRICH: “The Constitution of Liberty”, 1960.
20
Listed and analyzed in Section…page…
9
They reject the whole dysfunctional apparatus, even with the limits and controls: this is the first reaction, but there
are other undercurrents that strengthen then the attachment to a free, unconstrained, flexible, adaptive,
evolutionary system. These are the convictions that trying to improve the political system from within is useless
(political campaigns, new parties with platforms that are never fulfilled, without accountability). Once the
kleptocrats get in control it is impossible to dislodge them 21.
As we have shown, the reason behind is the absolute resilience of the economic political model 22.
We see that the work of foundations, think-tanks, free market experts and gurus explaining the damage of the
policies enacted suggesting correct moves and changes are utterly useless. We see generous grants to these think
thanks by many important and very wealthy corporations and lobbies going down the drain with no effect on the
formal sector policies23.
Public choice theory explains what the aims of politicians are: to make money, power and sex.
That is the reason why people felt (“the hell with all this bullshit”) and through a very successful survival strategy
now have grown to 42% of world employment (2,2 billion people and 37% of WGDP xxx billions) 24and exited from
the formalized sector.
By showing that large and increasing portions of the population and world GDP have already seceded from state
control and operate in the informal sector, we are adding factual support 25 to the theoretical discussion mentioned
above. We argue that the theoretical insights that try to analytically demonstrate the viability of a stateless society
are strongly supported by the overwhelming amount of empirical evidence that shows that we are currently living in
a world where large segments of the population are in fact living and working in a growingly depoliticized
environment and where an important share of world GDP is produced informally. Based on recent studies, media
reports, surveys and some anecdotal evidence, we show that we are witnessing a global ‘reinformalization’ process.
We use the prefix ‘re’ in ‘reinformalization’ because we believe that humankind’s original or primal natural state is
not a rigid state-controlled formal organization but a peaceful, cooperative, spontaneously ordered civil society.
Solid theoretical arguments and overwhelming evidence back this ‘cooperative’ or ‘spontaneous order’ position.
Thus, we regard evidence of the growing informal sector as an indication of a return to a previous equilibrium, a sort
of ‘back to basics’ in human social evolution.
We hope this paper will help people realize that the conventional view is flawed by showing them that the data
about the size and growth of the underground or informal sectors support the theoretical arguments about the
possibility and benefits of letting the invisible hand -and not a paternalistic state- guide our progress.
As Lachman explained:
“The chief object of this book is thus to rekindle interest in the fundamental problems of capital rather than to
present a closed system of generalizations about them; to outline a new approach and to show that it can be
applied, with some promise of success, to a number of such problems ranging from the productivity of capital to
the demise of the 'strong boom'; to point out the implications of certain economic facts which have been long
neglected; and, above all, to emphasize the transmission of knowledge, the interaction of minds, as the ultimate
agent of all economic processes.”
“I am painfully aware of the fact that this book leaves many vital questions unanswered. It could hardly be
otherwise. But it is my hope that others will follow and make their contributions to the theory of capital.”
21
See…page
22
Max Weber said: xxx
23
See FIEL´s book xxxx supported by xxx
24
I recall some exchanges with some limited government or plain brainwashed opinators: “It is the law, what has to be done is
to change the law before but until that is achieved the law must be abided”.
That is not only a myth, a fallacy, but a ridiculous slogan. Tell that to the victims of the Holocaust.
25
3 premios Nobel…
10
(Lachmann, Ludwig M. Capital and Its Structure. Ludwig von Mises Institute, 1956.)
More than anything else, what follows is an agenda for research; I hope that it will provide the stimulus for pursuing
that agenda.( North, 2005)
We cannot resist paraphrasing Nozick when he subtitled his article “Who Would Choose Socialism?”( Reason 10,1
(May 1978), 22-23) :
“the Israeli Kibbutzim Provide the Acid Test for Voluntary Socialism”
we can say, in a striking parallelism, that
The Informal Revolution Provides the Acid Test for Voluntary Social Organization.
11
Theoretical Framework
1. The operativization of the reinformalization process is explained by the Theory of Spontaneous Order. As Friedrich
Hayek explains:
“Such an order involving an adjustment to circumstances, knowledge of which is dispersed among a great many
people, cannot be established by central direction. It can arise only from mutual adjustment of the elements
and their response to the events that act immediately upon them. It is what M. Polanyi has called the
spontaneous formation of a ‘polycentric order’: ‘When order is achieved among human beings by allowing them
to interact with each other on their own initiative – subject only to the laws which uniformly apply to all of them
– we have a system of spontaneous order in society”. 26
“The sophisticated version of anarchism makes appeal to the efficacy of a spontaneous order. The analysis and
defense of spontaneous order in the work of F. A. Hayek has given us reason to rethink the assumption that a benign
social order must primarily be the intended product of design. Hayek argues that spontaneous acts of adjustment by
independent agents will regularly generate desirable social outcomes that could not have been foreseen or intended
at the outset and that were thus not capable of production according to plan. The moral rights operative within a
community, the anarchist contends, are the priceless by-products of such a spontaneous order.” (Lomasky, 1987)
2. And Sugden explains: There is a strong temptation to associate social order with planning and with constraint - to
suppose that order must be the product of human design and that it must require enforcement. As Hayek (1960, p.
159) puts it, there is a very widespread “inability to conceive of an effective coordination of human activities
without deliberate organization by a commanding intelligence”. Our sense of the rationality of the human species
tends to blind us to the possibility that social order might be spontaneous. 27
26
FRIEDRICH A. HAYEK, “The Constitution of Liberty”, Chicago, Regnery, 1960, p. 160.
27
SUDGEN, R. The Economics of Rights; Co-operation & Welfare. 1986.
12
Informality
Empirical Evidence - Size of the Informal Sector
1- Preface to Syllabus
What follows is a syllabus28 of Shadow Economy29 figures in papers which as we explain in note 8, we try to organize
and classify analytically by category, findings, data, correlations, size, and measurements and analysis by area
specialists30 that have worked in this area and whose findings arrive, with different systems of measurement, to
coincidental and therefore robust results of the Size of the World Informal System (W.I.S).
We add a couple of synoptic and comparative charts that shed some light on the subject as the chart of the
suggestive correlative appearance, growth and co-evolution of tax burden, tax havens, informality and size of the
state.
[Appendix A]
From the Methodenstreit to the Kon-Kluden Streit

(We dare boldly to state that the situation we faced is a scientific evolutionary step beyond the Methodenstreit, that
was the debate about the appropriate method to acquire knowledge. This is not the question we are facing now (that
is basically a reinterpretation of data) we are in a more advanced stage that I dare label the Kon- Kluden Streit: from
the same data we can arrive to diverging or opposite conclusions. This first bifurcation point appears when different
or opposite conclusions evolve from the same data. The conclusions from correct data, are syllogistically correct, but
within a predetermined ideological and theoretical framework, premises, limits, starting points and goals that don`t
allow wert-frei correct conclusions 31, they are elicited from the meme-sequitur state idea theoretical dead end matrix
box from where they did not seem willing or able to get out and control their analysis as I already said in some other
section. This is the starting point from which I started freely exploring and reinterpreting data.
These authors think that cooperation and division of labour appeared as a second stage 32 to improve interpersonal
relationships, the creation of wealth and wellbeing, (in interactions of what now game theory labels either as
“defectors or cooperators”)33.
This Part III syllabus includes the data of the shadow economies of 176 countries and the conclusions from a
conventional view that does not conceive a different political framework. The conclusions of all sections of the
syllabus show an attitude of the researchers as government´s agents or advisors on how to get the disengaged
masses back into the taxable cage assuming informality is a problem and not as wert-frei scientific research of data
that seeks understanding and explaining what is happening, what people want and people didn´t want. Some
examples of this attitudes are compiled in section 12.1 and are self-explanatory. 34
When a discovery is made, when an idea is expressed, it is assumed to become the common property of the
scientific world. Each discovery and each new insight builds on the last. Science rises like a building, brick by brick.
Intellectual chronicles can be, for all practical purposes, linear. (Kuhn)
28
An outline or a summary of the main points of a text, lecture, or course of study.
29
In all our paper when we put Schneider we mean Schneider et. al. and other researchers.
30
Schneider, Montenegro, Macintyre, Teobaldelli, Buehn, Enste, Torgler, Elgin & Öztunal ı, Manning & Smith, Tanzi, Feige,
Block/Walker, Kaufmann-Kaliberda, Lackó, Frey and Weck-Hannemann, Regalado, Helguera, Ortiz Espina and Roser, IMF, INDEC,
The World Bank, Alstadsaeter, Johannesen and Zucman, Medina, Raggi and Turino, Roca, Moreno and Sanchez, Ihrig and Moe,
Busato and Chiarini, and South Korean think tank with North Korean figures, etc.
31
We can arrive validly, with all those available bricks, to altogether opposite conclusions, a different edifice that opens doors in
other directions. E.H.
32
See my comment chapter…, where we point out that development of human progress came with the division of labour,
cooperation, simultaneously coevolving, not first a chaotic state of Nature, and then the appearance of a Common Power that
coercively organizes society.
33
For the Hobbesian State of Nature myth to be correct, everybody, or a significant majority, should have been defectors, and
this is obviously not so.
34
This is explored in some depth and extension in Chapter X, Myth, Myth-sequiturs, Meme-sequiturs, are commented and noted
in section: Schneiderisms. Page….
13
Shadow Economy Manual

What follows is an organized digest, a manual of Informality with the main findings by researchers of shadow
economies of the world on causes, methods of measurement, size of the informal sector, attitudes of people,
correlations with various social or individual issues.
This syllabus was prepared for our own use and may be very helpful to interested people to understand the
Structure of Informality.. E.H.
I selected not Schneider’s introduction on a clear description and framework of the task:
2- Schneider’s Introduction
Shadow Economy / Tax Evasion and Related Areas
Since over 25 years I’m engaged in mostly empirically orientated research of the shadow economy and tax evasion.
My research started with two questions: (1) how to define a shadow (underground, black, cash, parallel, criminal)
economy and (2) how to measure the size and development of the shadow economy. Hence, the shadow economy is
defined in many ways, but the predominant definition is to compromise all at present not officially recorded
productive (i.e. value-adding) activities, which should be part of gross national income.
My other major research areas are the consequences of a rising shadow economy and its interaction with the official
one. One of my major concern is that due to shadow economy activities, government revenues (from taxation and
social security contributions) are (partly) lost. On the other hand, underground activities are value-creating and
introduce a dynamic element into the “official” economy; the latter effects I showed in various studies for Germany
and Austria.
One major finding is that 2/3 of the shadow economy activities are complementary to official activities. Hence the
substitution effect between official and shadow economy activities is only 1/3!
Another challenging result is that roughly 66% of the income earned in the shadow economy is spent immediately
in the official economy – hence this black money considerably stimulates the official economy and compensates a
part of the revenue losses.
Another research area is the interaction of the shadow economy and corruption: Theoretically the question is
unsettled whether there is a substitutive or complementary relationship. Empirically this question is preliminarily
solved; my research with Axel Dreher shows a complementary (substitutive) relationship in developed (developing)
countries, but the results are not robust.
Lately, together with Lars Feld we undertook microeconometric investigations: why people evade taxes and/or work
in the shadow economy.
(Friedrich Schneider, Major research areas, 2013)
14
3- Definitions
Shadow Economy
Most authors trying to measure the shadow economy face the difficulty of how to define it. One commonly used
working definition is:
1- all currently unregistered economic activities that contribute to the officially calculated (or observed) Gross
National Product.
2- "market-based production of goods and services, whether legal or illegal, that escapes detection in the official
estimates of GDP".
Or to put it in another way, one of the broadest definitions of it includes… [Smith (1994, p. 18)]:
3- "those economic activities and the income derived from them that circumvent or otherwise avoid government
regulation, taxation or observation"
In this paper the following more narrow definition of the shadow economy is used.
The shadow economy includes all market-based legal production of goods and services that are
deliberately concealed from public authorities for the following reasons:
1) to avoid payment of income, value added or other taxes,
2) to avoid payment of social security contributions,
3) to avoid having to meet certain legal labour market standards, such as minimum wages, maximum working
hours, safety standards, etc.,
4) to avoid complying with certain administrative procedures, such as completing statistical questionnaires or
other administrative forms.
Hence, in this paper, we will not deal [with typical underground, economic (classical crime) activities, which are all
illegal actions that fit the characteristics of classical crimes like burglary, robbery, drug dealing, etc. we also exclude
the informal household economy which consists of all household services and production. This paper also does not
focus on tax evasion or tax compliance], because it would get too long, and moreover tax evasion is a different
subject, where already a lot of research has been undertaken (Schneider & Buehn 2009).35
35
Friedrich Schneider and Andreas Buehn , Shadow Economies and Corruption all over the World: Revised Estimates for 120
Countries, October 2009
15
4. Measuring the Shadow Economy. (4.1 to 4.7 prepared by E.H.)
4.1. Methodologies
Estimating the size of the shadow economy is difficult and daunting. Nevertheless, various approaches and
methodologies have been suggested and to some extent used in the literature to come up with estimates. Schneider
(2005) and more recently Orsi, Raggi and Turino (2012) provide an excellent survey and comparison of different ways
of estimating the shadow economy size. We critically review these below, however we refer the reader to these two
papers for a longer survey of these approaches.
Basically, the best known methodologies are the:
4.1.1. Currency demand approach assumes that shadow transactions are undertaken in the form of cash payments,
so as to leave no observable traces for the authorities. An increase in the size of the shadow economy will therefore
increase the demand for cash.
4.1.2. Kaufmann-Kaliberda’s physical input (electricity consumption) method indicates that overall (official and
unofficial) economic activity and electricity consumption have been empirically been observed worldwide in lockstep
with an electricity/GDP elasticity usually close to one. So, the difference between the gross rate of official GDP and
the gross rate of total electricity consumption can be attributed to the growth of the shadow economy.
4.1.3. The DYMIMIC (Dynamic-Multiple-Indicators Multiple Causes) Model method explicitly considers multiple causes
that can lead to the existence and growth of the shadow economy as well as the multiple effects that shadow
economy can have over time. It is based on the statistical theory of unobserved variables, which considers multiple
causes and multiple indicators of the phenomenon being measured.
4.1.4. Deterministic Dynamic General Equilibrium Model , Ceyhun Elgin, Oguz Öztunalı´s paper (Shadow Economies
around the World: Model Based Estimates, published in 2012) estimates, through a new method, the size of the
shadow36 (informal) economy in 161 countries, from 1950 to 2008/2009. To observe the variation of the shadow
economy size in different group of countries over time, they divided the world into 6 different groups. These are
OECD-EU, Latin American and Caribbean, Post-Socialist (Transition), Middle East and North African, Sub-Saharan
African and Asia-Oceania countries. These authors use a different method 37 to the MIMIC used by Schneider; even
though “1999-2007 part of our dataset has a correlation of 0.987 with the shadow economy data reported by
Schneider, Buehn and Montenegro (2010)” and it has the advantage that “it has a significantly larger time-dimension
than the currently existing ones, this aims to be the largest dataset in the literature”
Schneider (2005) classifies shadow economy estimation methods under three categories. They differ in various
dimensions but they are all based on the use of several different econometric estimation methods. These are:
1)direct approaches, 2)indirect approaches and 3)the MIMIC approach, respectively.
4.2. Direct Approaches

Direct approaches are generally based on the use of surveys, questionnaires, interviews and tax auditions of firms
and/or households, the results of which are then used to constructs estimates of shadow economy size employing
microeconomic or microeconometric methods. (See Schneider, 2005 for a list of papers using these approaches.)
Difficulties regarding the sample choice, possible existence of a selection bias, measurement errors regarding
interviews and surveys are among the disadvantages of these approaches. Moreover, these approaches are mostly
used at some specific point in time and it is usually very difficult to create a time dimension and therefore a time-
varying estimate of the shadow economy size.
36
We will use the expressions ‘informal sector’ or ‘shadow economy’ interchangeably throughout this article.
37
It is based “on a simple deterministic dynamic general equilibrium model which is mostly adapted from Roca, Moreno and
Sanchez (2001), Ihrig and Moe (2004), and Busato and Chiarini (2004).” “To this end, we will rely on a two-sector (official and the
shadow economies) dynamic general equilibrium model. In what follows, we will first solve this model and characterize it in the
steady state. Then we will calibrate the model's key parameters to match various observables in the data and finally we'll use the
model to back out the unobservable size of the shadow economy.”
16
4.3. Indirect Approaches

Methods under this category usually try to obtain estimates exploiting various different macroeconomic
relationships under certain assumptions. Estimates can be obtained for example from differences between:
4.3.1. National income and expenditures,
In national accounting, the income measure of GNP should be equal to the expenditure measure of GNP. Thus, if an
independent estimate of the expenditure side of the national accounts is available, the gap between the expenditure
measure and the income measure can be used as an indicator of the extent of the shadow economy. Since national
account statisticians will be anxious to minimize this discrepancy, the initial discrepancy or first estimate, rather than
the published discrepancy, should be employed for this purpose. If all the components of the expenditure side were
measured without error, then this approach would indeed yield a good estimate of the scale of the shadow
economy. However, this is not the case, unfortunately, and the discrepancy therefore reflects all omissions and
errors everywhere in the national account statistics as well as the shadow economy activity. These estimates are
therefore of questionable reliability. (Schneider and Enste 2000)38
4.3.2. Official and actual labor force participation,
A decline in labor force participation in the official economy can be seen as an indication of increased activity in the
shadow economy, if total labor force participation is assumed to be constant, ceteris paribus. (…)
The weakness of this method is that differences in the rate of participation may have other causes. Moreover,
people can work in both the shadow and the official economies. Therefore, such estimates may be viewed as weak
indicators of the size of the shadow economy. (Schneider and Enste 2000)39
4.3.3. Transactions and national income,
This approach was developed by Feige (1979, 1989, and 1996). Feige assumes that there is a constant relation over
time between the volume of transactions and official GNP. This approach therefore starts from Fisher’s quantity
equation, MV = pT (with M = money, V = velocity, p = prices, and T = total transactions). Assumptions have to be
made about the velocity of money and the relationships between the value of total transactions (pT) and total (=
official + unofficial) nominal GNP. Relating total nominal GNP to total transactions, the GNP of the shadow economy
is calculated by subtracting official GNP from total nominal GNP. However, Feige has to assume a base year in which
there is no shadow economy, and therefore the ratio of pT to total nominal (official = total) GNP was normal.
This method, too, has several weaknesses; for instance, the assumption of a base year with no shadow economy,
and the assumption that the ratio of transactions to official GNP is constant over time. Moreover, to obtain reliable
estimates, precise figures of the total volume of transactions need to be available. This availability might be
especially difficult to achieve for cash transactions, because they depend, among other factors, on the durability of
bank notes, in terms of the quality of the paper on which they are printed. In this approach the additional
assumption is made that all variations in the ratio between the total value of transactions and the officially measured
GNP are due to the shadow economy. This means that a considerable amount of data is required in order to
eliminate financial transactions from pure cross payments which are legal and have nothing to do with the shadow
economy.
4.4. Electricity consumption and GDP.

4.4.1. Kaufmann-Kaliberda’s physical input (electricity consumption) method , indicates that overall (official and
unofficial) economic activity and electricity consumption have been empirically been observed worldwide in lockstep
with an electricity/GDP elasticity usually close to one. So, the difference between the gross rate of official GDP and
the gross rate of total electricity consumption can be attributed to the growth of the shadow economy. (Schneider
and Enste 2000)40
38
Schneider, F., & Enste, D. H. 2000. Shadow Economies: Size, Causes, and Consequences. Journal of Economic Literature
39
Schneider, F., & Enste, D. H. 2000. Shadow Economies: Size, Causes, and Consequences. Journal of Economic Literature
17
4.4.2. Lackó method.
Lackó (1998, 1999, 2000a,b) assumes that a certain part of the shadow economy is associated with the household
consumption of electricity. This part comprises the so-called household production, do-it-yourself activities, and
other non-registered production and services. Lackó further assumes that in countries where the portion of the
shadow economy associated with the household electricity consumption is high, the rest of the hidden economy (or
the part Lackó cannot measure) will also be high. Lackó (1996, pp.19 ff.) assumes that in each country a part of the
household consumption of electricity is used in the shadow economy.(Schneider and Buehn, 2013)40
4.5. Currency demand approach,

Is based on the use of a currency demand function to estimate the size of the shadow economy. The currency
demand approach assumes that shadow transactions are undertaken in the form of cash payments, so as to leave
no observable traces for the authorities. An increase in the size of the shadow economy will therefore increase the
demand for cash. (Schneider and Enste 2000)
These methods are generally criticized for being based on various simplifying and limiting assumptions. Moreover,
they generally focus on one specific aspect or indicator of the shadow economy and neglect many others. (See
Schneider, 2005 for a more extensive review and critic of these approaches.)
4.6. Deterministic Dynamic General Equilibrium Model (Elgin & Öztunal, 2012)
“This method is based on a simple deterministic dynamic general equilibrium model which is mostly adapted from
Roca, Moreno and Sanchez (2001), Ihrig and Moe (2004), and Busato and Chiarini (2004). To this end, we will rely on
a two-sector (official and the shadow economies) dynamic general equilibrium model. In what follows, we will first
solve this model and characterize it in the steady state. Then we will calibrate the model's key parameters to match
various observables in the data and finally we'll use the model to back out the unobservable size of the shadow
economy.”
“Currently used approaches aiming to estimate the size of the shadow economy might be criticized from three
different points of view. First, all these methods are based ad-hoc econometric specifications and assumptions.
Second, heavy use of econometric estimations make them prone to measurement errors. Finally, even though they
specify various macroeconomic variables in their econometric specifications, they don't have any microeconomic
foundations which makes them open to the Lucas Critique.” (See Lucas, 1976.)
4.7. MIMIC Approach

This approach builds upon the works of Frey and Weck-Hannemann (1983) and is essentially based on the use of a
specific structural equation model, titled the MIMIC approach. This approach treats the size of the shadow economy
as an unobserved latent variable and essentially consists of two steps: In the first step, one determines the causes
and the indicators of the shadow economy. Then in the second step, given the causes and the indicators and the
specified relationship among them through the unobserved latent variable, one runs a structural equation model to
estimate the coefficients of the causes and the indicators. However, similar to the methods outlined above, this
approach is based on the use of ad-hoc econometric specifications thereby making it subject to statistical errors.
Moreover, another shortcoming of this approach is that it does not rely on any micro-foundations. Breusch (2005) is
one of the heavy critics of using the MIMIC approach for this purpose.
(Elgin & Öztunal, Shadow Economies around the World: Model Based Estimates, 2012)
40
Friedrich Schneider and Andreas Buehn , Estimating the Size of the Shadow Economy: Methods, Problems and Open Questions,
October 2013
18
5. Sizes (prepared by E.H. from referred sources)
GDP
GDP Informality Informality
Informality AVG.
2007 99´-´07 2007
Region Weighted ´99-´07
(billions (billions (billions
(% of GDP) (billions
U$S) U$S) U$S)
U$S)
Europe & Central Asia 38,9 13.557 20.361 5.274 7.920
High income: OECD 17,1 30.420 39.525 5.202 6.759
High income: nonOECD 23 2.016 3.429 464 789
Latin America & Caribbean 41,1 2.487 3.871 1.022 1.591
Middle East & North Africa 28 1.236 2.041 346 571
South Asia 33,2 884 1.506 294 500
Sub-Saharan Africa 40,2 517 877 208 353
East Asia & Pacific 32,3 8.991 11.861 2.904 3.831

World 33 40.039 55.907 13.213 18.449
(Source: own calculations using figures from Schneider, Buehn and Montenegro (2010), and Data Bank of World Bank)
GDP Informality
GDP Informality
Informality AVG. unw. 99´-
2007 unw. 2007
Region Unweighted ´99-´07 ´07
(billions (billions
(% of GDP) (billion (billions
U$S) U$S)
s U$S) U$S)
Europe & Central Asia 36,4 13.557 20.361 4.934,61 7.411,26
High income: OECD 13,4 30.420 39.525 4.076,26 5.296,36
High income: nonOECD 20,8 2.016 3.429 419,23 713,23
Latin America & Caribbean 34,7 2.487 3.871 863,03 1.343,33
Middle East & North Africa 27,3 1.236 2.041 337,41 557,20
South Asia 25,1 884 1.506 221,92 377,89
Sub-Saharan Africa 37,6 517 877 194,27 329,93
East Asia & Pacific 17,5 8.991 11.861 1.573,37 2.075,62

World 17,1 40.039 55.907 6.846,68 9.560,03
(Source: own calculations using figures from Schneider, Buehn and Montenegro (2010), and Data Bank of World Bank)
Informalit
y
GDP AVG. ´01-´09 GDP 2009 Informality ´01-´09 Informality 2009
Region Weighted
(billions U$S) (billions U$S) (billions U$S) (billions U$S)
(% of
GDP)
OECD-EU 16,53 34.556 40.962 5.712 6.771
L.A. & Caribe 36,28 3.220 5.201 1.168 1.887
Post-Socialist 31,55 89 136 28 43
MENA 21,06 1.694 2.693 357 567
Sub-Saharian 36,16 707 1.144 256 414
Asia 26,45 302 467 80 124
World 23,95 47.969 63.508 11.488 15.210
(Source: own calculations using figures from Elgin & Öztunal, 2012, and Data Bank of World Bank)
5.1. Other Measurements. (Prepared and compiled by E.H.)

5.1.1. Manning and Smith (2007) estimate that the informal economy represents 42 percent of value added in
Africa, 41 percent in Latin America and 35 percent in the transition economies of Europe and the Former Soviet
Union, compared with 13, 5 percent in the OECD countries.
5.1.2. Arroyo Alejandre, J. Berumen Sandoval, S. Migración a Estados Unidos: remesas, autoempleo e informalidad
laboral. 2009. Universidad de Guadalajara
19
5.1.3. Feige (…) estimates the underground economy as comprising in the neighbourhood of 20 per cent or so of
total recorded economic activity activity for the U.S. and the U.K. As well, he cites a similar research conclusion for
Canada. (Block, 1984)
Manning & Smith

Elgin & Öztunal 2012 Schneider 2010
2007
Informality Weighted Informality Informality (% of
Region
(% of GDP) Weighted (% of GDP) GDP)
Período ´01-´09 ´99-´07 2007
OECD-EU 16,53 13,4 13,5
Latin 36,28 34,7 41
MENA 21,06 27,3 -
Sub-saharan 36,16 37,6 -
Asia 26,45 - -
Post-Sociali 31,55 - -
Africa - - 42
South Asia - 25,1 -
East Asia & Pacific - 17,5 35
Europe & Central Asia - 36,4 -
High income: nonOECD - 20,8 -
World 23,95 17,1 -
20
6. Causes (prepared by E.H. from Schneider et.al. referred papers)

Our starting point is that the development of the informal sector can be viewed as a consequence of the failure of
public institutions to support an efficient market economy through appropriate provision of public goods and
services. This scenario can arise when the government is either wasteful or corrupt but still exerts considerable
discretionary power over resource allocation. Citizens who feel overburdened by the state will choose the “exit
option” and decide to work in the informal sector as a reaction to inefficient government (Schneider and Enste
2002).41
The main causes of the shadow economy are:
6.1. Tax and Social Security Contribution Burdens
In almost all studies it has been found out, that the tax and social security contribution burdens are one of the
main causes for the existence of the shadow economy. Since taxes affect labor-leisure choices, and also stimulate
labor supply in the shadow economy, the distortion of the overall tax burden is a major concern of economists. The
bigger the difference between the total cost of labor in the official economy and the after-tax earnings (from work),
the greater is the incentive to avoid this difference and to work in the shadow economy. Since this difference
depends broadly on the social security burden/payments and the overall tax burden, they are key features of the
existence and the increase of the shadow economy. (Schneider 2006) 42
Some authors (Schneider and Neck 1993; Loayza 1996) argue that high levels of taxes and regulations are the main
determinants of informal sector activity, whereas others (Johnson et al. 1997; Friedman et al. 2000; Torgler and
Schneider 2009) find that inefficient and discretionary application of regulations and the tax system by government
plays a crucial role in the decision to operate unofficially—an even more important role than that played by the
burden of taxes and regulations themselves (for a review, see Schneider and Enste 2000). ( Teobaldelli & Schneider
2012)43
But even major tax reforms with major tax rate deductions will not lead to a substantial decrease of the shadow
economy. Such reforms will only be able to stabilize the size of the shadow economy and avoid a further increase.
Social networks and personal relationships, the high profit from irregular activities and associated investments in
real and human capital are strong ties which prevent people from transferring to the official economy. (Schneider
2006)25
A.The burden of direct and indirect taxation, both actual and perceived: a rising burden of taxation provides a
strong incentive to work in the shadow economy.
B.The burden of regulation as proxy for all other state activities. It is assumed that increases in the burden of
regulation give a strong incentive to enter the shadow economy.
C.The tax morality (citizens’ attitudes toward the state), which describes the readiness of individuals (at least
partly) to leave their official occupations and enter the shadow economy: it is assumed that a declining tax
morality tends to increase the size of the shadow economy. (Schneider, 2009)44
6.2. Intensity of Regulations
Increased intensity of regulations is another important factor which reduces the freedom (of choice) for
individuals engaged in the official economy. One can think of labour market regulations, trade barriers, and labour
restrictions for foreigners. Johnson, Kaufmann, and Zoido-Lobatón (1998b) find significant overall empirical evidence
of the influence of (labour) regulations on the shadow economy; and the impact is clearly described and theoretically
derived in other studies, e.g. for Germany (Deregulation Commission 1990/91). Regulations lead to a substantial
increase in labour costs in the official economy. But since most of these costs can be shifted to the employees,
41
Schneider, F., & Enste, D. H. (2002). The shadow economy. An international survey. Cambridge: Cambridge University Press.
42
Friedrich Schneider, Shadow Economies and Corruption All Over the World: What Do We Really Know?, September 2006
43
Désirée Teobaldelli and Friedrich Schneider, The Influence of Direct Democracy on the Shadow Economy, May 2012
44
Friedrich Schneider, The Size of the Shadow Economy for 25 Transition countries over 1999/00 to 2006/07: What do we
know?, September 2009
21
these costs provide another incentive to work in the shadow economy, where they can be avoided. Their empirical
evidence supports the model of Johnson, Kaufmann, and Shleifer (1997), which predicts, inter alia, that countries
with more general regulation of their economies tend to have a higher share of the unofficial economy in total GDP.
Johnson, Kaufmann, and Zoido-Lobatón (1998b) conclude that it is the enforcement of regulation which is the key
factor for the burden levied on firms and individuals, and not the overall extent of regulation - mostly not enforced -
which drives firms into the shadow economy. Friedman, Johnson, Kaufmann and Zoido-Lobaton (2000) reach a
similar conclusion (Schneider & Buehn, 2009).45
6.3. Table: Main Causes of the Increase of the Shadow Economy

Factors Influencing the Shadow Economy
The most important driving forces are: Influence on the shadow economy (in%) 1)
(1) Increase of the Tax and Social Security 35-38% 45-52%
Contribution Burdens
(2) Intensity of State Regulations 8-10% 10-15%

(3) Social Transfers 5-7% 5-8%
(4) Specific Labor Market Regulations 5-7% 5-8%
(5) Public Sector Services 5-7% 5-8%
(6) Tax Morale 2) 22-25% -
Overall influence 76-94% 70-90%
1) Average values of empirical results of 28 studies.

2) Average values of "only" 15 studies
Source: Schneider (2004)
(Source: Schneider, 2006)46
45
Friedrich Schneider and Andreas Buehn , Shadow Economies and Corruption all over the World: Revised Estimates for 120
46
22
7. Correlations (compiled from Schneider et.al. findings in their referred papers)
7.1. Official Economy

As it has been shown in a number of studies (Enste and Schneider, 2006; Feld and Schneider, 2010) the situation of
the official economy also plays a crucial role of people’s decision to work or not to work in the shadow economy. In a
booming official economy, people have a lot of opportunities to earn a good salary and “extra money” in the official
economy. (Schneider, Buehn, and Montenegro, 2010)47
7.2. Government Interventions have a positive impact on the size of shadow economy. More government
interventions crowd out private initiative and investments in the private sector.
The economic freedom to engage in business activities suffers, and frustration arising from too many interventions
by the government might increase the inclination to engage in illegal activities.
7.3. Unemployment: we also observe the tendency that a higher level of unemployment is positively correlated
with a higher level of shadow economy.
7.4. Corruption:
Generally defined as the misuse of governmental power for private gain or benefit. 48
Friedman et al. (2000) show empirically that countries with more corruption have a higher share of unofficial
economy. Shadow economy and corruption are substitutes in high-income countries, but complements in low-
income countries.
Citizens will feel cheated if they believe that 1)corruption is widespread, 2)their tax burden is not well spent,
3)their government lacks accountability, and 4)that they are not protected by the rules of law. (Bandwagon)
(Torgler, Schneider, and Macintyre, 2011)49
7.5. Direct Democracy: Direct democratic institutions have positive effects on fiscal policies and on civic trust in
government and tax morale.
Citizens who feel overburdened by the state will choose the “exit option” and decide to work in the informal sector
as a reaction to inefficient government (Schneider and Enste 2002). Direct democratic institutions provide citizens
with the “voice option” over government performance.
More direct democracy favors the implementation of fiscal policies closer to the preferences of citizens; these
policies are more efficient and thus reduce individuals’ incentives to operate in the informal sector.
7.6. Schneider and Enste (2002) were the first to recognize that proper elements of direct democracy, together
with fiscal federalism, might strengthen public trust in political institutions and reduce the size of the shadow
economy.
(Teobaldelli & Schneider, May 2012)50
7.7. The results indicate that a higher level of voice and accountability reduces the size of the shadow
economy.
(Torgler, Schneider, and Macintyre, 2011)31
47
Friedrich Schneider, Andreas Buehn, and Claudio E. Montenegro; New Estimates for the Shadow Economies all over the World,
September 06, 2010
48
Osmel Brito-Bigott, Hugo J. Faría, José Miguel Rodríguez, Alejandro Sánchez, Corruption and Complex Business Rules, 2008.
49
Benno Torgler, Friedrich Schneider, and Alison Macintyre; Shadow Economy, Voice and Accountability and Corruption, 2011
50
23
7.8. Tax Morale: Citizens’ attitudes toward paying taxes – what is sometimes termed their “tax morale”, or the
intrinsic motivation to pay taxes. Tax morale may be a key determinant to explain why people are honest.
Societal variables such as trust or pride have been identified as key determinants that shape tax morale in Austria.
7.8.1. Trust in the legal/justice system: If the state is seen to be acting in a trustworthy way, taxpayers’ trust
increases and also their willingness to comply with their tax obligations.
7.8.2. Perceived tax evasion: If individuals notice that many others evade taxes, their willingness to pay taxes may
decrease, crowding out their intrinsic motivation to comply with taxes (see Frey and Torgler, 2004; Alm and
Martinez-Vazquez, 2003).
7.8.3. Church attendance: This variable is a proxy for religiosity. The church as an institution induces behavioral
norms and moral constraints among their community. Some papers in the criminology literature found a negative
correlation between religious membership and crime (see, e.g., Hull, 2000; Hull and Bold, 1989; Lipford, McCormick
and Tollison, 1993). Religiosity seems to affect the degree of rule breaking. Religiosity can thus be a restriction on
engaging in tax evasion.
We found evidence that societal variables such as trust, national pride or religiosity 51 have an impact on tax morale.
There is a mix of internal and external norms that affects individuals compliance attitudes. If people perceive that tax
evasion is a common phenomenon, their intrinsic motivation to contribute to the society decreases.
(Torgler , Schneider, 2005)52
7.8.4. Enforcement is an important determinant of the shadow economy. More enforcement can effectively deter
shadow economic activities.
51
See the Religiosity section
52
Benno Torgler , Friedrich Schneider; Attitudes Towards Paying Taxes in Austria: An Empirical Analysis, 2005.
24
8. Consequences (from Schneider et.al. findings in their referred papers)
8.1. Some governments, prefer more regulations and laws, when trying to reduce the shadow economy, mostly
because it leads to an increase in power of the bureaucrats and to a higher rate of employment in the public
sector. (Schneider 2007)53
Considering a public choice perspective a fourth conclusion for highly developed countries is that a government may
not have a great interest to reduce the shadow economy due to the fact that:
i.tax losses may be moderate, as at least 2/3 of the income earned in the shadow economy is immediately spent in
the official economy,
ii.income earned in the shadow economy increases the standard of living of at least 1/3 of the working population ,
and
iii.people who work in the shadow economy have less time for other things like going to demonstrations, etc.
(Schneider, 2009)54
8.2. Shadow economy reduces corruption in high income countries, but increases corruption in low income
countries. (Schneider & Buehn 2009)55
8.3. Public Sector Services

An increase of the shadow economy can lead to reduced state revenues which in turn reduce the quality and
quantity of publicly provided goods and services. (Schneider , Buehn and Montenegro, 2010)56
53
Friedrich Schneider and Andreas Buehn , Shadow Economies and Corruption All Over the World: Revised Estimates for 120
54
Friedrich Schneider, The Size of the Shadow Economy for 25 Transition countries over 1999/00 to 2006/07: What do we
know?, September 2009
55
Schneider and Andreas Buehn , Shadow Economies and Corruption all over the World: Revised Estimates for 120 Countries,
October 2009
56
Friedrich Schneider, Andreas Buehn, and Claudio E.; New Estimates for the Shadow Economies all over the World, September
06, 2010
25
9. Viewing informality as a problem for governments and politicians from inside, as governments’
advisors for getting informals back into the state meme matrix box cage.
9.1. There are several important reasons why policy makers should be especially concerned about the rise of the
shadow economy. Among the most important of these are:
9.1.1. A growing shadow economy can be seen as the reaction of individuals who feel overburdened by the state
and who choose the “exit option” rather than the “voice option” (Albert O. Hirschman 1970). If the increase of the
shadow economy is caused by a rise in the overall tax and social security burden together with “institutional
sclerosis” (Mancur Olson 1982), then the “consecutive flight” into the shadow economy may erode the tax and
social security bases. The result can be a vicious circle of a further increase in the budget deficit or tax rates,
additional growth of the shadow economy, and gradual weakening of the economic and social basis of collective
arrangements.
9.1.2. A prospering shadow economy may cause severe difficulties for politicians because official indicators—on
unemployment, labor force, in-come, consumption—are unreliable. Policy based on erroneous official indicators is
likely to be ineffective, or worse.
9.1.3. The effects of a growing shadow economy on the official one must also be considered. On the one hand, a
prospering shadow economy may attract (domestic and foreign) workers away from the official economy and create
competition for official firms. On the other hand, at least two-thirds of the income earned in the shadow economy
is immediately spent in the official economy, thus having a positive effect on the official economy. (Schneider &
Enste 2000)57
9.2. One of my major concerns is that, due to shadow economy activities, government revenues (from taxation
and social security contributions) are (partly) lost. On the other hand, underground activities are value-creating and
introduce a dynamic element into the “official” economy. (Friedrich Schneider, Major research areas, 2013)
9.3. (…) one of the big challenges for every government is to undertake efficient incentive orientated policy
measures in order to make working in the shadow economy less attractive and, hence, to make working in the
official economy more attractive. Successful implementation of such policies may lead to a stabilization, or even
reduction, of the size of the shadow economies. (Schneider & Buehn 2011)58
9.4. (..) governments should put more emphasis on improving enforcement of laws and regulations, rather than
increasing their number. (Schneider, 2006)59
10. Size of unreported jobs as % of total employment as researched by Schneider
10.1. Work in the Shadow: Some Facts

In this paper the main focus lies on the shadow economy labor force in OECD, developing and transition countries.
Besides informal employment in the rural and non-rural sector also other measures of informal employment like the
share of women and men are shown. (…) economic opportunities, the overall burden of the state (taxes and
regulations), the general situation on the labor market, and unemployment are especially crucial for an
understanding of the dynamics the shadow labour force.
57
Schneider, F., & Enste, D. H. 2000. Shadow Economies: Size, Causes, and Consequences. Journal of Economic Literature.
58
BUEHN, A. SCHNEIDER, F. Shadow Economies Around The World: Novel Insights, Accepted Knowledge, And New Estimates.
July 2011
59
26
10.2. This OECD study concludes that in many parts of the world and over the period 1990 to 2007 informal
employment is the norm, not the exception,. More than half of all jobs in the non-agricultural sectors of
developing countries – over 900 million workers – can be considered informal. If agricultural workers in developing
countries are included, the estimates size to roughly 2,000 million people.
(…) In some regions, including Sub-Saharan Africa and South Asia, over 80% of non-agricultural jobs are informal.
Most informal workers in the developing world are self-employed and work independently, or owe and manage very
small enterprises. According to the OECD study (2009), informal employment is a result of both, people being
excluded from official jobs and people voluntarily opting out of formal structures, e.g. in many middle income
countries incentives drive individuals and businesses out of the formal sector.
10.3. To summarize, this OECD study clearly comes to the conclusion that informal is really the norm or the
normal case. 1.8 billion people work in informal jobs, compared to 1.2 billion who benefit from formal contracts
and social security protection. Informal economic activity, excluding the agricultural sector, accounts for three
quarters of the jobs in Sub-Saharan Africa, more than two thirds in South and South East Asia, half in Latin
America, the Middle East and North Africa, and nearly one quarter in transition countries. If agriculture is
included, the informal share of the economy in the above mentioned regions is even higher (e.g. more than 90 % in
South Asia).
(…) The study also concludes that the share of informal employment tends to increase during economic turmoil. For
example, during the Argentine economic crisis (1999-2002), the countries’ “official” economy shrank as by almost
one fifth while the share of informal employment expanded from 48 to 52 percent. One can clearly conclude that
even under strong economic growth, the share of non-agricultural employment and, the share of informal
employment is strongly rising.
10.4. In Table 4.2 the share of informal employment in total non-agricultural employment by five-year period and
by region is presented. From the table one clearly sees that in all regions the share of informal employment has
remarkably increased over time. The share of informal employment in South- and Middle-American countries in
the period of 1985-1989 was 32.4% and increased in the period of 2000-2007 to 50.1%. In 34 Asian countries
informal employment rose in the period of 1985-1989 from 55.9% to 70.2% from 2000-2007. In the 42 African
countries the share of informal employment (in percent of total non agricultural employment) was 40.3% from
1985-1989, and increased to 60.5% in 2000-2007.
10.5. For developing and transition countries, the shadow economy labor force has reached a remarkable size
according to OECD (2009) estimates, which is, that in most developing countries the shadow economy labor force
is higher than the official labor force. What we do not know are the exact motives, why people work in the shadow
economy and what is their relation and feeling if a government undertakes reforms in order to bring them back
into the official economy. (Schneider, 2013)60
60
SCHNEIDER, FRIEDRICH. Work in the Shadow: Some Facts. August 2013
27
11. Size of shadow economies as % of WGDP

11.1. If we first consider the results of the average size of the shadow economy of the 27 European Union
countries, we realize that the shadow economy in the year 2003 was 22.3% (of official GDP), decreased to 19.3% in
2008 and increased to 19.8 % in 2009 and then decreased again to 18.4 % in 2013. If we compare the average of 31
European countries, in 2003 the average size was 22.4%, decreased to 19.4% in 2008, and increased to 19.9% in
2009 and decreased to 18.5 in 2013 (Table 2). If we consider the development of the shadow economy of Australia,
Canada, Japan, New Zealand and the USA, we find a similar movement over time (see Table 3.); in 2013 these 5
countries had an average size of the shadow economy of 8.6%, in 2010 this value was 9.7%.
If we consider the size of the shadow economies over the last 2 years (2012 and 2013) and compare them with the
years 2008/09, we realize that, in most countries, we had again a decrease of the size and development of the
shadow economy, which is due to the recovery from the worldwide economic and financial crises. Hence, the most
important reason for this decrease is, that, if the official economy is recovering or booming, people have fewer
incentives to undertake additional activities in the shadow economy and to earn extra “black” money.
The only exception is Greece, where the recession of the official economy is so strong, that it even reduced the
demand of the shadow economy activities due to the severe income losses of the Greece people; the Greek shadow
economy will decrease to 22.5% of official GDP in 2012; a decrease of 1.4 percentage points compared to the year
2010.
11.2. A change in the size of the shadow economy may be reflected in the following indicators:
28
11.2.1. Development of monetary indicators. If activities in the shadow economy rise, additional monetary transactions are
required.
11.2.2. Development of the labor market. Increasing participation of workers in the hidden sector results in a decrease in
participation in the official economy. Similarly, increased activities in the hidden sector may be expected to be reflected in
shorter working hours in the official economy.
11.2.3. Development of the production market. An increase in the shadow economy means that inputs (especially labor)
move out of the official economy (at least partly), and this displacement might have a depressing effect on the official growth
rate of the economy.
11.3. The first conclusion from these results is that for the 25 transition countries investigated the shadow
economies have reached a remarkably large size; the average shadow economy of these 25 transition countries
was 38.1 % (of official GDP) in 1999/00 and rose to 41.0 % in 2004/05, but decreased to 39.9 % in 2006/07 due to
the booming official economy. (Schneider, 2009)61
11.4. Graphic 1. Evolution of Shadow Economy (in % of GDP) estimated with MIMIC.
(Source: Schneider, Buehn and Montenegro 2010) 62
61
SCHNEIDER, FRIEDRICH. The Size of the Shadow Economy for 25 Transition countries over 1999/00 to 2006/07: What do we
know?. September 2009.
62
“WORLD” is not the average informality for the World but the average World’s informality when one weights every country
equally.
29
11.5. Evolution of Shadow Economy (in % of GDP) estimated using deterministic dynamic general
equilibrium model (Elgin & Öztunal, 2012)
(Source: Elgin & Öztunal, 2012)1
11.6. Developing Countries

Schneider and Buehn point out that “large shadow economies in some developing countries are only to some extent
an issue of tax burden and regulation, given the simple fact that the limited local economy means that citizens are
often unable to earn a living wage in a legitimate manner. Working in the shadow economy is often the only way of
achieving a minimal standard of living in developing countries (excluding the direct taxation variable in the MIMIC
estimation). If we consider the trend of the un-weighted average of the emerging and developing countries over time,
in the year 1999 the size was 37.5% and modestly decreased to 35.4% in the year 2007.”
11.7. Transition Countries

“If we first consider the unweighted average shadow economy of these 25 Eastern European and Central Asian
countries, it was 38.7% in 1999 and decreased to 34.2% in 2007.”
“The three countries with the smallest shadow economies are the Slovak and Czech Republics, and Hungary with an
average size over the period 1999 to 2007 of 18.1, 18.4, and 24.4 percent. Romania, Bosnia & Herzegovina, and
Albania are in the middle with 32.6, 33.6, and 34.3 percent. The highest shadow economies include the Ukraine,
Azerbaijan, and Georgia with 49.7, 58.0, and 65.8 percent, respectively.”
11.8. Developed Countries (OECD)

“The unweighted average was 17.7% in 1999, and decreased to 16.6% in 2007. Some high-income OECD countries,
like Portugal, have ups and downs, while others (like Belgium and Australia) show a steady decrease. The countries
with the smallest shadow economies include Switzerland, the United States, and Luxembourg with an average size
over the period 1999 to 2007 of 8.5, 8.6, and 9.7 percent, respectively. The largest shadow economies among these
25 high-income OECD countries include Mexico with 30.0, Greece with 27.5, and Italy with 27.0 percent.”
11.9. Average Size of the Informal Sector per Region

11.9.1. Table 4.1. Average Informality (Unweighted) by World Bank´s Regions
Region Mean median min max sd
EAP
East Asia and Pacific 32.3 32.4 12.7 50.6 13.3
ECA
Europe and Central Asia 38.9 39.0 18.1 65.8 10.9
30
LAC
Latin America and the Caribbean 41.1 38.8 19.3 66.1 12.3
MENA
Middle East and North Africa 28.0 32.5 18.3 37.2 7.8
OECD
High Income OECD 17.1 15.8 8.5 28.0 6.1
OHIE
Other High Income 23.0 25.0 12.4 33.4 7.0
SAS
South Asia 33.2 35.3 22.2 43.9 7.0
SSA
Sub-Saharan Africa 40.2 40.6 18.4 61.8 8.3
World
33.0 33.5 8.5 66.1 12.8
(Source: Schneider, Buehn and Montenegro 2010)
11.9.2. Table 4.2. Average Informality Weighted2 by Total GDP in 2005
Region Mean median min max sd
EAP
East Asia and Pacific 17.5 12.7 12.7 50.6 10.6
ECA
Europe and Central Asia 36.4 32.6 18.1 65.8 8.4
LAC
Latin America and the Caribbean 34.7 33.8 19.3 66.1 7.9
MENA
Middle East and North Africa 27.3 32.5 18.3 37.2 7.7
OECD
High Income OECD 13.4 11.0 8.5 28.0 5.7
OHIE
Other High Income 20.8 19.4 12.4 33.4 4.9
SAS
South Asia 25.1 22.2 22.2 43.9 5.9
SSA
Sub-Saharan Africa 37.6 33.2 18.4 61.8 11.7
World
17.1 13.2 8.5 66.1 9.9
(Source: Schneider, Buehn and Montenegro 2010)

“The first conclusion from these results is that for all countries investigated the shadow economy has reached a
remarkably large size with a weighted 63 (unweighted) average value of 17.1 (33.0)% of official GDP. However, equally
important is the clear negative trend of the size of the shadow economy over time. The unweighted average size of
the 162 countries decreased from 34.0% of official GDP in 1999 to 31.2% in 2007; for the 25 transition countries
from 38.7% in 1999 to 34.2% in 2007.”
“The results with respect to the countries’ development stage are very impressive too: the averages of the weighted
yearly informality estimates demonstrate that Sub-Saharan Africa has the largest shadow economies (with an
average of 37.6%) followed by Europe and Central Asia (with an average of 36.4%). At the bottom of the distribution,
we find the OECD countries with an average of 13.4%, which is consistent with the fact that richer economies have
lower informality rates.”
63
“In order to measure how much of the GDP in the world is really informal, we weighted by total country GDP. In particular, for
every country/year, we weighted the rate of informality by the total GDP. This gives us the GDP in current Billion US dollars that
is informal for each country/year. Then we added up this amount and divided it by the total GDP of the sample. The same had
also been done for the sub-samples of the eight world regions the World Bank distinguishes.”
31
“The second conclusion is that shadow economies are a complex phenomenon present to a large extent in all type
of economies (developing, transition, and highly developed). People engage in shadow economic activities for a
variety of reasons –especially in response to government actions, most notably, taxation and regulation.”
“The third conclusion is that there are regional disparities in the level of informality, but obvious regional clusters. At
the top level of informality we find Sub-Saharan Africa, and at the lowest level of informality we find the OECD
countries.”
(Schneider, Buehn and Montenegro 2010)64
11.10.
64
SCHNEIDER, F. BUEHN, A. MONTENEGRO, C. Shadow Economies all over the world: New estimates for 162 countries from
1999-2007. 2011
32
12. Attitudes (findings by Schneider et.al.)
12.1. Public Opinion about the Shadow Economy

The perception of citizen/voters about the shadow economy and their (moral) reaction to this phenomenon is also
an important factor, under which circumstances people decide to work in the shadow economy. In this short section
some results for Germany are shown which clearly demonstrate that people have no bad (moral) feeling when
working in the shadow economy. In table 2.2 for the year 2003 it is investigated, whether people regularly work in
the shadow economy or not. 25 % of the German respondents say “yes”, and 46 % of the respondents regularly
demand shadow economy activities. In table 2.3 some reasons are asked, why shadow economy activities are
demanded. The most important result is, one saves money – or shadow economy activities are much cheaper than
the official ones. The second most important reason is, that the tax and social security burden is too high (73 % of
the respondents) and reason number three is, that due to the much higher labour costs in the official economy,
one would not demand these activities.
Especially the third answer is interesting, because this result clearly demonstrates that only 23 % of the demanded
shadow economy activities have substitutive character (i.e. they would be demanded in the official economy if there
would be no shadow economy) and only 9 % of the respondents answer, they would do by themselves. From this
survey result one can conclude that roughly 70% of these activities would not be taken place if there would be no
shadow economy.
12.2. In table 2.5 important attitudes of the German population are shown, concentrating on the issue, what are
“Kavaliersdelikt”. These results convincingly demonstrate over the years 1996 to 2003 that roughly two thirds of
the German population treat shadow economy activities as a “Kavaliersdelikt”, whereas a third also treats such a
small theft as stealing a newspaper from a box as a “Kavaliersdelikt”. In table 2.6 values statements of the German
population with respect to the shadow economy are shown, again two thirds say that without shadow economy
earnings one can not keep the achieved standard of living and only a third of the asked population means that
shadow economy activities lead to great losses of tax revenues and social security payments to the state. What is
most amazing in table 2.6, are the attitudes of the German population with respect to punishment of shadow
economy activities: only between 9 % and 3 % of the asked German population are convinced, that shadow
economy workers should be reported to the authorities and prosecuted! A similar extreme low figure one gets,
when asking if a shadow economy worker is detected, he should severely be punished. Only between 7% and 3%
of the asked population say, “yes” this clearly shows that there is no bad (moral) feeling about working in the
shadow economy among the German population. The results are quite similar for Austria.
12.3. Table 2.3: Reasons, for Shadow Economy Activities – Survey Results for Germany, May 2003
Reasons, why shadow economy activities are demanded Values in

%
(1) One saves money - or they are much cheaper than in the official one 90%
(2) The tax and social security burden is much too high 73%
(3) Due to the high labour costs in the official economy one would not demand 68%
these activities (extreme assumption no shadow economy: 23% demand these
activities in the official economy, 9% make do-it-yourself)
Representative questionnaire, Germany, May 2003, Source: Schneider(2004)
33
12.4. Table 2.5: Values/Attitudes of the German population regarding shadow economy Question: What are
“Kavaliersdelikt” (negligible delicts)
German Population (in % Yes)
Statement Nov./Dec Nov./De

May May May
. c.
1996 1998 2001
2002 2003
To undertake oneself shadow
36 41 33 36 38
economy activities
Not to be honest with the tax
22 22 18 - 18
declaration
12.5. Table 2.6: Values/Attitudes of the German population regarding shadow economy Statements
German Population (in % Yes)

Ma
Statement May May Nov./Dec Nov./Dec
y
199 199 . .
200
6 8 2002 2003
1
Without shadow economy earnings one cannot
62 69 69 70 71
keep up the standard of living
It's the state/government own fault that the
shadow economy is so popular and large,
63 67 57 66 67
because the tax and social security burden is too
high
I think, shadow economy workers should be
9 4 6 3 3
reported to the authorities and prosecuted
If a shadow economy worker is detected he

7 4 5 7 3
should be punished severely (high financial fines)
12.6. Table 2.7: Main Causes of the Increase of the Shadow Economy
Factors Influencing the Shadow Economy
The most important driving forces are: Influence on the shadow economy (in%) 1)
(1) Increase of the Tax and Social Security 35-38% 45-52%
Contribution Burdens
(2) Intensity of State Regulations 8-10% 10-15%

(3) Social Transfers 5-7% 5-8%
(4) Specific Labor Market Regulations 5-7% 5-8%
3) Average values of empirical results of 28 studies.

12.7. Further results are that 7% of the managers think that their employees work between 0 and 2 hours per week
in the shadow economy; 29% assume that they work between 6 and 10 hours, 28% between 3 and 5 hours and 14%
think that their employees work more then 10 hours per week in the shadow economy; 22% of all managers have no
knowledge of this fact. In principle 39% of managers are not in favour (do not support) moonlighting by their
workers and 61% are in favour (do support) - an amazingly high percentage. (Schneider, 2006)65
65
Schneider, F. Shadow Economies and Corruption All Over the World: What Do We Really Know?. September 2006
34
12.6. Informalization: problem or solution? Examples of informality seen as a problem:

Very good examples of a Neo-Machiavellian way of focusing on attitudes: advisors to the ruler how he can best get
the vassals back. This is always done from a state myths strongly entrechened and not discussed at all. It belongs to
an undiscusible base, as the moon, the stars. It is like this forever. The other way of seeing it is from the people’s
stand point, as a solution. This deserves some debate. E.H.
12.6.1. “One of my major concerns is that due to shadow economy activities, government revenues (from
taxation and social security contributions) are (partly) lost.” (Friedrich Schneider, Major research areas, March
2013)
He prefers for government to got the money, not the private entrepeneurs. E.H.
12.6.2. In principle 39% of managers are not in favour (do not support) moonlighting by their workers and 61%
are in favour (do support) - an amazingly high percentage .(Friedrich Schneider, Shadow Economies and
Corruption AU Over the World: What Do We Really Know?, September 2006)
61% of the managers support moonlighting. Amazingly high percentage. This must be corrected. It is bad for people
to work and keep their money. E.H.
12.6.3. “(...)these policies are more efficient and thus reduce individuals’ incentives to operate in the informal
sector.(...)”
Policies that reduce incentives to operate in the informal sector are more efficient. E.H.
12.6.4. “(...)Direct democratic institutions allow for such distortions to be corrected, which should reduce the
incentive of citizens to participate in the informal sector.(...)” (Desiree Teobaldelli and Friedrich Schneider, The
Influence of Direct Democracy on the Shadow Economy, May 2012)
Direct Democracy Institutions correct this distortion. E.H.
12.6.5. “More enforcement can effectively deter shadow economic activities. Although this result has been
derived from a small sub-sample of countries, the cautious conclusion is that enforcement is a useful policy
instrument to control the size of the shadow economy.” (Andreas Buehn and Friedrich Schneider, Shadow
Economies Around The World: "Novel Insights, Accepted Knowledge, And New Estimates, July 2011)
More enforcement can effectively deter shadow economic activities. More inspectors, police, imprisonment and
fines are needed.E.H.
12.6.6. “But even major tax reforms with major tax rate deductions will not lead to a substantial decrease of the
shadow economy. Such reforms will only be able to stabilize the size of the shadow economy and avoid a further
increase.”
However informality is so strong that “even major tax reforms with major tax rate deductions will not lead to a
substantial decrease of the shadow economy” only stabilization can be expected but not a substantial decrease.
(What a problem!) E.H.
12.6.7. “These findings demonstrate that governments should put more emphasis on improving enforcement
of laws and regulations, rather than increasing their number. Some governments, however, prefer this policy option
(more regulations and laws), when trying to reduce the shadow economy, mostly because it leads to an increase in
power of the bureaucrats and to a higher rate of employment in the public sector. In this study the effect of
government regulation on the development of the shadow economy will be investigated for developing, transition
and highly developed countries.”
More enforcement is needed, to get the idiots back to the taxable cage.E.H.
12.6.8. “What is most amazing in table 2.6, are the attitudes of the German population with respect to
punishment of shadow economy activities: only between 9 % and 3 % of the asked German population are
convinced, that shadow economy workers should be reported to the authorities and prosecuted! A similar extreme
low figure one gets, when asking if a shadow economy worker is detected, he should severely be punished. Only
35
between 7% and
3% of the asked population say, “yes”. This clearly shows that there is no bad (moral) feeling about working in the
shadow economy among the German population. The results are quite similar for Austria.” (Friedrich Schneider,
Shadow Economies and Corruption all over the world: what do we really know?, September 2006)
Again: argument: only 3% to 9% of german and austrian population believe Shadow Economy workers should be
prosecuted and reported.E.H.
12.6.9. "Considering these three facts, it is obvious that one of the big challenges for every government is to
undertake efficient incentive orientated policy measures in order to make work less attractive in the shadow
economy and hence to make the work in the official economy more attractive. In a number of OECD countries this
policy direction has been successfully implemented and this has led to a reduction of the shadow economy.”
(Friedrich Schneider, The Size of the Shadow Economy for 25 Transition countries over 1999/00 to 2006/07: What
do we know?, September 2009)
Again, neo-machiavellian approach to socio-economic analysis: “get the bastards back”. E.H.
12.6.10. "For developing and transition countries, the shadow economy labor force has reached a remarkable
size according to OECD (2009) estimates, which is, that in most developing countries the shadow economy labor
force is higher than the official labor force. What we do not know are the exact motives, why people work in the
shadow economy and what is their relation and feeling if a government undertakes reforms in order to bring them
back into the official economy.” (Friedrich Schneider, Work in the Shadow: Some Facts, August 2013)
The Shadow Economy labor force is higher in developing countries than the official labor force . “Bring them back”.
E.H.
12.6.11. There are several important reasons why policy makers should be especially concerned about the rise of
the shadow economy. Among the most important of these are:
12.6.11.1. A growing shadow economy can be seen as the reaction of individuals who feel overburdened by the
state and who choose the “exit option” rather than the “voice option” (Albert O. Hirschman 1970). If the increase of
the shadow economy is caused by a rise in the overall tax and social security burden together with “institutional
sclerosis” (Mancur Olson 1982), then the “consecutive flight” into the shadow economy may erode the tax and
social security bases. The result can be a vicious circle of a further increase in the budget deficit or tax rates,
additional growth of the shadow economy, and gradual weakening of the economic and social basis of collective
arrangements.
“The flight may erode the tax and social security bases” Shame on that. E.H.
12.6.11.1. A prospering shadow economy may cause severe difficulties for politicians because official indicators—
on unemployment, labor force, income, consumption—are unreliable. Policy based on erroneous official indicators
is likely to be ineffective, or worse.
Policy and interventionists laws can become innefective. Planning by the bureaucracies is much difficult. Shame on
that. E.H.
12.6.11.2. The effects of a growing shadow economy on the official one must also be considered. On the one
hand, a prospering shadow economy may attract (domestic and foreign)workers away from the official economy and
create competition for official firms. On the other hand, at least two-thirds of the income earned in the shadow
economy is immediately spent in the official economy, thus having a positive effect on the official economy.
(Schneider proviso) [Friedrich Schneider and Dominik H. Enste, Shadow Economies: Size, Causes, and
Consequences, Journal of Economic Literature Vol. XXXVUI (March 2000)]
12.6.1. The first conclusion from these results is that for the 25 transition countries investigated the shadow
economies have reached a remarkably large size; the average shadow economy of these 25 transition countries
36
was 38.1 % (of official GDP) in 1999/00 and rose to 41.0 % in 2004/05, but decreased to 39.9 % in 2006/07 due to
the booming official economy. (Schneider, 2009)66
12.6.2. In Table 4.2 the share of informal employment in total non-agricultural employment by five-year period
and by region is presented. From the table one clearly sees that in all regions the share of informal employment
has remarkably increased over time. (Schneider, 2013)67
12.6.3. The perception of citizen/voters about the shadow economy and their (moral) reaction to this
phenomenon is also an important factor, under which circumstances people decide to work in the shadow economy.
In this short section some results for Germany are shown which clearly demonstrate that people have no bad
(moral) feeling when working in the shadow economy. In table 2.2 for the year 2003 it is investigated, whether
people regularly work in the shadow economy or not. 25 % of the German respondents say “yes”, and 46 % of the
respondents regularly demand shadow economy activities. In table 2.3 some reasons are asked, why shadow
economy activities are demanded. The most important result is, one saves money – or shadow economy activities
are much cheaper than the official ones. The second most important reason is, that the tax and social security
burden is too high (73 % of the respondents) and reason number 3 is, that due to the much higher labour costs in
the official economy, one would not demand these activities. (Schneider, 2006)68
12.6.4. Tax morale is the citizens’ attitude toward paying taxes or the intrinsic motivation to pay taxes. It may be
a key determinant to explain why people are honest. (Schneider uses the term honest instead of tax- compliant or
submissive.E.H)
12.6.15.1. Societal variables such as trust or pride have been identified as key determinants that shape tax morale in
Austria.
12.6.15.2. Trust in the legal/justice system: If the state is seen to be acting in a trustworthy way, taxpayers’ trust
increases and also their willingness to comply with their tax obligations.
12.6.15.3. Perceived tax evasion: If individuals notice that many others evade taxes, their willingness to pay taxes
may decrease, crowding out their intrinsic motivation to comply with taxes (see Frey and Torgler, 2004; Alm and
Martinez-Vazquez, 2003).
12.6.15.4. Church attendance: This variable is a proxy for religiosity. The church as an institution induces behavioral
norms and moral constraints among their community. Some papers in the criminology literature found a negative
correlation between religious membership and crime (see, e.g., Hull, 2000; Hull and Bold, 1989; Lipford, McCormick
and Tollison, 1993). Religiosity seems to affect the degree of rule breaking. Religiosity can thus be a restriction on
engaging in tax evasion.
12.6.15.5. We found evidence that societal variables such as trust, national pride or religiosity have an impact on
tax morale. There is a mix of internal and external norms that affects individuals compliance attitudes. If people
perceive that tax evasion is a common phenomenon, their intrinsic motivation to contribute to the society
decreases.(Torgler , Schneider, 2005)69
12.6.5. More direct democracy favors the implementation of fiscal policies closer to the preferences of citizens;
these policies are more efficient and thus reduce individuals’ incentives to operate in the informal sector.
(Teobaldelli & Schneider, May 2012)70
66
SCHNEIDER, FRIEDRICH. The Size of the Shadow Economy for 25 Transition countries over 1999/00 to 2006/07: What do we
know?. September 2009.
67
SCHNEIDER, FRIEDRICH. Work in the Shadow: Some Facts. August 2013
68
Schneider, F. Shadow Economies and Corruption All Over the World: What Do We Really Know?. September 2006
69
Benno Torgler , Friedrich Schneider; Attitudes Towards Paying Taxes in Austria: An Empirical Analysis, 2005.
70
37
12.7. Conclusions
From the Methodenstreit to the Konkluden Streit.
The data is not debated about.It is accepted. But it is the interpretation that is contrasted, and the conclusions vary and in many
cases are exactly the opposite. (see chart)
The findings by researchers and scholars of this topic give us the basis for final conclusions:
12.7.1. Kavaliers delikte (97% of people don´t see informality as illegal or normally bad)
12.7.2. 2/3 of the Shadow economy´s production goes back into the formal economy.
12.7.3. 52% of employment is in the Informal Sector of xxx.
12.7.4. 38% of WGDP is informal
12.7.5. Informal sectors are growing faster than the formal ones
12.7.6. the reason many people disengage are: - tax and regulatory burdens
12.7.7. people reject the ethics of redistribution
12.7.8. people prefer to allocate themselves the resources they produce and not this to be decided by politicians.
12.7.9. Polycentricity is growing, spontaneous order is taking hold of the social fabric
The positive side of this divergent opinions is that they come from the same data.
The debate should not be over if Informality is good or bad.
It is what could be said if the informalization reaches (by reductio ad absurdum) say, 90%. Politicians and statists will
complain, but people chose this different way of organizing society.
38
Part IV
13 – Comments
13.1. In point 10 we indicate how much of the world’s GDP is produced in the informal sector in an effort to
determine the relative importance of governments and the activities in which the state interferes versus the degree
in which societies are returning (or starting to return) to spontaneous, uncontrolled activities. These are the result of
the actions undertaken freely by people who ignore the existence of the entity called State, producing, working and
trading in an independent, unreported and free way.
13.2. When confronted with these trends of growing informal sectors we have the impression that humankind has
reached a stage of technological and social evolution where large portions of its population have successfully eluded
state controls; controls which appeared in the 1930s and were strengthened after the 1960’s with the growth of the
welfare state. Constructivists and social engineers pointed out these phenomena (the appearance and the expansion
of the states) as milestones in human development and as points of no return in history: it seemed as if people
depended on the state to live their lives (“In the beginning there was the state”).
13.3. This massive depoliticization process can be seen as a “problem” or a threat that has to be solved is the
mainstream way of seeing it. But it could also be viewed from a political philosophy perspective rather than from a
tax evasion one. It is a case of value- free natural evolution rather than a social immoral pathology. It is felt as a
solution by common people and only a problem for predatory states and politicians. This begs for a
reinterpretational redescription71 of the trend.
13.4. Anyway, both opinions (problem or solution) are not in the same level of analysis. Informality is studied more
as a general theory, from a sociological, political philosophy theory of the State and the shadow economy focus is
more on the size and consequences of the informal sector, whose desirability can be agreed upon or not, but does
not alter the value of the hard data found, that can be reinterpreted both ways and useful for both hypothesis. (A
strategic alliance can be envisaged between both ideas)
New light on this STREIT is Thaler’s behavioral economics, and his opinion:
When he is asked about our opposing visions, Gene Fama often says: “We agree on the facts, but disagree on the
interpretation of them”
And as Katie M. Palmer pointed out in Wired, psychologists cannot even agree on basic methods for arriving at
“truth”, whatever that is. In an article headlined “Psychology is in Crisis Over Whether it’s in Crisis”, “two groups of
very smart people are looking at the exact same data and coming to wildly different conclusions.”
[Scientific American Mind, July/August 2016]
71
Karmiloff-Smith’s methodological insight.
39
14 – Trends
“Societies that get "stuck" embody belief systems and institutions that fail to confront and solve new problems of
societal complexity.”
DOUGLASS C. NORTH72
14.1. Schneider and Enste’s paper shows the strong global trend towards reinformalization (graphic 6.5, pag. 41) that
now seems to be plateauing (graphic 1 pag. 38). If this trend could be verified for later years, an empirical support of
high relevance for our hypothesis and all valid theoretical arguments for freedom, would be found. We would be
witnessing the reinformalization process of societies and their economies, which count with an increasing
percentage of activities that are performed without state interference. Anyway, we highlight the large size informal
sectors have in terms of GDP in the countries and regions studied (tables 1 and 2, page 40).
15 – Areas in Process of Reinformalization

15.1. Next is a list of areas that are in process of reinformalization and depoliticization. They are described in The
Informal Revolution73:
● Security
● Justice
● Taxes
● Labor market
● Monetary and Banking Systems
● Education
● Defense
● Foreign Aid: Privatization of foreign aid by remittances.
● Health
● Social Security
● Patents and Copyrights
● Media
● Free trade. Barter. Internet.
● Fisheries. Pastures. River basins.
● Marriage
● Adoption
● Assisted Fertilization
● Drugs
72
NORTH, DOUGLASS C.: “Economic Performance through Time”, 1993, prepared for presentation at the Prize Lecture in Economic
Science in memory of Alfred Nobel, Nobel Foundation.
73
HELGUERA, EDUARDO: “The Informal Revolution”, unpublished.
40
16 - Conclusions
16.1. According to these figures, the state – as a social and political organization – does not have the relevance that
media coverage and brain washing effects seem to sustain and its real incidence in the lives of individuals is smaller
than thought by people and by government’s own self-proclaimed purposes. States’ relative presence in the global
economy (formal and informal) is shrinking and their aura of sanctity is slowly beginning to fade.
16.2. Given that the greater part of the world population lives in developing and emerging countries we can assume
that the majority of humankind lives and develops independently from states and their interference. The population
growth rate according to geographical areas and level of development of countries also suggest that – as
demographic growth is noticeably more accelerated in developing and emerging areas – population is growing with a
larger acceleration where the state has less presence and the size of the shadow economy is relatively bigger.
Therefore the percentage of the world population that acts in informal depoliticized segments of the civil society
keeps growing at a quicker rate than the growth of formal GDP. This would be an interesting investigation line in
order to determine with greater precision the relative importance of the reinformalization process, in relation to
demographic rhythms, the growth of different economies and the billions of people disengaged of political control.
16.3. We must point out the refocus, the reinterpretative redescription on the subject: what is usually studied as the
“informality problem” is actually the “solution” that people find and apply to rampant sociosclerosis. And seen from
this perspective it appears as a very healthy trend.
16.4. The sheer size and scope of the informal, depoliticized segments of society, that arrived to an estimated size of
38.5%, roughly US$ 30 trillion, of the World’s 2016 US$ 75 trillion GDP (World Bank figures) and the fact that these
sectors are operated by roughly 2 billion of the World’s 6.7 billion people (totally or partially unreported), adds
enormous empirical support to theories advocating for economic and political freedom. This is what this paper has
intended to show, repeat: show. Not to prove.
16.5. Regarding the debate about human social organization and the degree of sustainability of present political
statist organizations vis-à-vis coercion-free spontaneously ordered social organizations, we view the data shown in
the previous sections as strong empirical evidence supporting theoretical arguments not only about the viability of a
polycentric social organization but also its desirability.
16.6. If to the previous empirical measurements and theoretical scholarly attempts to interpret this phenomenon we
add anecdotal evidence found every day in mass media reports 74 that correctly and nearly completely analyze the
issue, the picture seems to appear quite clearly: the king has no clothes.
16.7. One might have a final question to ask. If the state is such an inefficient and parasitical form of social
organization, why does it still exist and why does conventional wisdom still regards it as a something necessary or
inevitable in order to live in society? Several theories, including Richard Dawkins’ Memetics 75 and Urbano Helguera’s
Sociotics76 can explain why such a distorted and refuted view is still alive and kicking in the minds of a large portion
of the population. Other theories, such as Public Choice theory, Path Dependence, Putney’s Autosystem hypothesis 77
and all the findings listed in section xx and provisionally classified, explain and help understand why and how such an
inefficient and dysfunctional social organization still exists. 78
74
See the Appendix VI, Anecdotal Evidence (Egypt)
75
DAWKINS, RICHARD: “The Selfish Gene”, Oxford University Press, 1976.
76
HELGUERA, URBANO: “Sociotics – Fundamentals of Human Social Behavior”, unpublished.
77
PUTNEY, SNELL: “The Conquest of Society”, 1972: “The basic problem is that large systems over the period of time take on
objectives of their own, distinct from the objectives of the men who created the systems in the first place”.
78
As de Jasay asks: “Why do contemporary societies end up with an ever-expanding state even when they claim to prefer less
government? That is, the arena of collective choice generally continues to grow even when voters have indicated they want less
government and the elected officials have made efforts to reduce public provision of goods. There is, of course, an enormous
literature, encompassing several competing theories, devoted to trying to explain the growth of government. Almost all of the
competing theories identify as an important factor systematic misinformation provided to the public about the actual costs of
providing public goods, of imposing regulation, and of engaging in inflationary finance.” Anthony de Jasay, Social Contract, Free
Ride: A Study of the Public Goods Problem, Oxford University Press, 1989.
41
16.8. This is what are trying to find out in this exploration and what we found is staggering to a point that could
make us expect that any attempt to dismantle the bureaucratic state from within and with their bureaucratic rules of
the game especially designed for gridlock 79 may probably fail. When Max Weber said “Once firmly established,
bureaucracy is among the social structures which are the hardest to be destroyed” he probably did not suspect
that such a network of biases, habits, fallacies, traditions, even paleoantropological roots could exist and be
epigenetically and coevolutionary hard-wired into our genetic code 80. There are surely more factors that would
strengthen the state construct matrix that I did not yet uncover and classify.
79
And this is especially effective in the Western legal system where interest groups get protection, privileges and monopolies
enacted and the repeal of these laws is very difficult and entangled in gridlocks. This is opposite of the British system of
privileges and that were given “by appointment” so they could very easyly be “dis-appointed”
80
To this we might add also cleptocratic and all the other inextricably intertwined factors that are listed and classified in section
xx.
42

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The Informal Revolution

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THE INFORMAL REVOLUTION

Size (Empirical Evidence)

Global Reinformalization as a Solution not as a

THE INFORMAL REVOLUTION

The State: A vestigial piece of empirically falsified hypothesis;

State Idea: Myth, Idol, Fetish, Hoax, Hocus Pocus, Superstition,

Understanding the Depoliticization Process: An exploratory inquiry into

The Polycentric Alternative: Reaction: Depoliticization by Grassroots

The Operators: Political gangs, Statolaters, kleptocrats, plunderers

Global Reinformalization: The process of disengagement of civil society

Informality is the empirical connection with, underpinning, scaffold, corporization and

Informality: Exit and Exclusion

(The Economist, July 19th, 2015)

We are working in this line.

This is what we labeled as the Kon-Kluden Streit.

We quote some authors in order to illustrate our point:

FRIEDRICH VON HAYEK

(David Boaz, The Libertarian Reader, 1996)

Why do people exit/secede/disengage from the formal system?

we can say, in a striking parallelism, that

From the Methodenstreit to the Kon-Kluden Streit

Shadow Economy Manual

4. Measuring the Shadow Economy. (4.1 to 4.7 prepared by E.H.)

4.2. Direct Approaches

4.3. Indirect Approaches

4.3.1. National income and expenditures,

4.3.2. Official and actual labor force participation,

4.3.3. Transactions and national income,

4.4. Electricity consumption and GDP.

4.5. Currency demand approach,

4.7. MIMIC Approach

5. Sizes (prepared by E.H. from referred sources)

5.1. Other Measurements. (Prepared and compiled by E.H.)

Manning & Smith

6. Causes (prepared by E.H. from Schneider et.al. referred papers)

6.1. Tax and Social Security Contribution Burdens

6.2. Intensity of Regulations

6.3. Table: Main Causes of the Increase of the Shadow Economy

(2) Intensity of State Regulations 8-10% 10-15%

1) Average values of empirical results of 28 studies.

(Source: Schneider, 2006)46

7. Correlations (compiled from Schneider et.al. findings in their referred papers)

7.1. Official Economy

8. Consequences (from Schneider et.al. findings in their referred papers)

8.3. Public Sector Services

10. Size of unreported jobs as % of total employment as researched by Schneider

10.1. Work in the Shadow: Some Facts

11. Size of shadow economies as % of WGDP

(Source: Schneider, Buehn and Montenegro 2010) 62

(Source: Elgin & Öztunal, 2012)1

11.6. Developing Countries

11.7. Transition Countries

11.8. Developed Countries (OECD)

11.9. Average Size of the Informal Sector per Region

Region Mean median min max sd

(Source: Schneider, Buehn and Montenegro 2010)

11.9.2. Table 4.2. Average Informality Weighted2 by Total GDP in 2005

Region Mean median min max sd

(Source: Schneider, Buehn and Montenegro 2010)

12. Attitudes (findings by Schneider et.al.)

12.1. Public Opinion about the Shadow Economy

Reasons, why shadow economy activities are demanded Values in

Representative questionnaire, Germany, May 2003, Source: Schneider(2004)