What is it about?
This paper studies the nonlinear relationship between income inequality and shadow economy. We found that income inequality and shadow economy resemble an inverted-N relationship. Additionally, we found that income inequality and shadow economy for OECD countries have similar inverted-N relationship while for developing countries, income inequality and shadow economy show an inverted-U relationship, similar to the original Kuznets hypothesis.
Featured Image
Why is it important?
Our findings show that relationship between income inequality and shadow economy is more complex than previously thought. For developing countries, shadow economy positively affect income inequality while in underdeveloped countries and developed countries, shadow economy negatively affect income inequality.
Perspectives
Shadow economy has always been seen as the negative part of the entire economy and the conventional wisdom tells us that getting rid of shadow economy almost always lead to better economy and better income inequality. However, this article shows the positive aspect of shadow economy to the whole economy and income inequality. We hope that policymakers will see the benefit of shadow economy in deciding the appropriate economic policies, especially for developing countries.
Wai Weng Yap
Universiti Kebangsaan Malaysia
Read the Original
This page is a summary of: Income inequality and shadow economy: a nonparametric and semiparametric analysis, Journal of Economic Studies, January 2018, Emerald,
DOI: 10.1108/jes-07-2016-0137.
You can read the full text:
Contributors
The following have contributed to this page
