The Hidden Economy

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The hidden economy has attracted considerable attention from not only economists but also politicians for more than three decades. The hidden economy has been used as a catchphrase and cited as a (main) cause of several economic and social problems. Nevertheless, no concrete answers for its size and connection with other economic variables are established. This book addresses these issues to some extent. It estimates the size of the hidden economy in Turkey using the Randomized Response Technique and the MIMIC model and takes a critical look at the estimates from a variety of methods. It also develops a latent-variable model framework for corruption. This differs from the conventional ways to measure corruption. It then links corruption to the hidden economy and finds a positive relationship between the two unobserved variables. The book in its last chapter reconsiders Blanchard-Quah decomposition and compares the results of the model with total output (hidden plus official) with those of the model with just official output. It concludes that the existence of the hidden economy has little impact on the demand management policies to take effect.