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Does taking the shadow economy into account matter when measuring aggregate efficiency?

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We analyse how adding the shadow economy to official output figures affects the estimated technical efficiency at the country level. We find that this not only slightly affects the ranking of efficiency scores, but also increases average efficiency in a sample of 87–97 countries, both developed and developing. Our results are robust to the functional form of the production technology and the adjustment of labour to account for years of schooling.

Document Type: Research Article


Affiliations: 1: Université Libre de Bruxelles (ULB), DULBEA and Centre Emile Bernheim, CP-140, avenue F.D. Roosevelt 501050 Brussels, Belgium 2: Department of Economics,Johannes Kepler University of Linz, A-4040 Linz-Auhof, Austria 3: Institut d’Etudes Politiques, Université Robert Schuman, 47 avenue de la Forêt Noire67082 Strasbourg Cedex, France

Publication date: July 1, 2011

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