Abstract

The shadow economy is an embarrassed subject for economists. They find it difficult to define and to measure, since it takes very different forms and the relevant information is deliberately concealed. Indeed, this aspect is evident by reading the empirical literature upon this topic: frequently, researches produce extremely diverse estimates of the underground economy in the same country and in the same period, depending on the definitions and the method that they use. This survey try to answer two questions: What must be defined the underground economy? How can we estimate the size of the shadow economy? The term "shadow economy" comprises numerous economic activities therefore it is difficult to provide a formal definition. A brief overview on these different classifications is synthesized in the paper: definitional or behavioural approach and the definition proposed by ISTAT of the "Non Observed Economy". The main part of the paper is devoted to present a survey on techniques used in order to estimate the shadow economy. The research subdivides in three categories the econometric methodologies: direct and indirect method, model approach. The statistical procedure, the main results and the principal critiques opposite in the literature are pointed out. Particular attention is paid to the Model approach (or MIMIC method), in order to explain the recent appeal of this approach among the scholars. The research ends with some general conclusions about the reliability of these techniques. Unfortunately, these techniques are often based on too strong assumptions and further improvements are not only possible but necessary, to assign sufficient reliability to the estimates of the underground economy.