Reference : Hide and seek: IMF intervention and the shadow economy
Scientific journals : Article
Business & economic sciences : Quantitative methods in economics & management
Business & economic sciences : Macroeconomics & monetary economics
Business & economic sciences : Economic systems & public economics
Business & economic sciences : Multidisciplinary, general & others
Hide and seek: IMF intervention and the shadow economy
Chletsos, Michael* mailto [University of Piraeus > Department of Economics]
Sintos, Andreas* mailto [University of Ioannina > Department of Economics]
* These authors have contributed equally to this work.
Structural Change and Economic Dynamics
[en] Shadow economy ; IMF programs ; Conditionality ; Structural adjustment ; World sample
[en] By explicating the mechanisms through which International Monetary Fund (IMF) programs operate, this study investigates the effect of IMF intervention on the shadow economy. Using a sample of 141 countries from 1991 to 2014, we examine the impact of both IMF participation and conditionality on the informal economy. Our analyses address sources of endogeneity related to, first, the IMF participation decision and, second, the conditions included within the program. The empirical findings suggest that both IMF program participation and conditionality increase the size of the shadow economy. Disaggregating IMF conditions into structural and quantitative shows that only structural conditions are significantly related to a larger shadow economy both in the short- and long-term. Financial development can reduce the size of the shadow economy, yet it cannot reverse the detrimental effect of IMF conditions. Our initial results are found to be robust across alternative empirical specifications.

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