What is it about?

In this paper, we use a novel cross-country dataset to investigate the relationship between the prevalence of the shadow economy and fiscal policy responses to the economic crisis induced by the pandemic.

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Why is it important?

The finding is that countries with a relatively larger shadow economy before the pandemic have adopted a smaller fiscal policy package. The results are robust to different econometric specifications, including an instrumental variable estimation. This reinforces the wider literature that countries (especially those with larger shadow economies) generally follow a procyclical policy as opposed to the optimal and countercyclical one.

Perspectives

Shows that COVID-19 fiscal stimulus packages were influenced by the size of the shadow economy

Professor Colin C Williams
University of Sheffield

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This page is a summary of: Fiscal stimulus packages to COVID‐19: The role of informality, Journal of International Development, January 2022, Wiley, DOI: 10.1002/jid.3628.
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