Measuring the size of the shadow economy in 30 provinces of China over 1995–2016: The MIMIC approach
Corresponding Author
Hailin Chen
China's Income Distribution Research Center, School of Public Finance and Taxation, Zhongnan University of Economics and Law, Wuhan, China
Correspondence
Qunli Sun and Hailin Chen
China's Income Distribution Research Center, School of Public Finance and Taxation, Zhongnan University of Economics and Law, 182# Nanhu Avenue, East Lake High-tech Development Zone, Wuhan 430073, China.
Email: sunqunli108@sina.com (Q.S.) and Email: znlv1991@163.com(H.C.)
Search for more papers by this authorFriedrich Schneider
Department of Economic, Research Institute of Banking and Finance, Johannes Kepler University Linz, Linz, Austria
Search for more papers by this authorCorresponding Author
Qunli Sun
China's Income Distribution Research Center, School of Public Finance and Taxation, Zhongnan University of Economics and Law, Wuhan, China
Correspondence
Qunli Sun and Hailin Chen
China's Income Distribution Research Center, School of Public Finance and Taxation, Zhongnan University of Economics and Law, 182# Nanhu Avenue, East Lake High-tech Development Zone, Wuhan 430073, China.
Email: sunqunli108@sina.com (Q.S.) and Email: znlv1991@163.com(H.C.)
Search for more papers by this authorCorresponding Author
Hailin Chen
China's Income Distribution Research Center, School of Public Finance and Taxation, Zhongnan University of Economics and Law, Wuhan, China
Correspondence
Qunli Sun and Hailin Chen
China's Income Distribution Research Center, School of Public Finance and Taxation, Zhongnan University of Economics and Law, 182# Nanhu Avenue, East Lake High-tech Development Zone, Wuhan 430073, China.
Email: sunqunli108@sina.com (Q.S.) and Email: znlv1991@163.com(H.C.)
Search for more papers by this authorFriedrich Schneider
Department of Economic, Research Institute of Banking and Finance, Johannes Kepler University Linz, Linz, Austria
Search for more papers by this authorCorresponding Author
Qunli Sun
China's Income Distribution Research Center, School of Public Finance and Taxation, Zhongnan University of Economics and Law, Wuhan, China
Correspondence
Qunli Sun and Hailin Chen
China's Income Distribution Research Center, School of Public Finance and Taxation, Zhongnan University of Economics and Law, 182# Nanhu Avenue, East Lake High-tech Development Zone, Wuhan 430073, China.
Email: sunqunli108@sina.com (Q.S.) and Email: znlv1991@163.com(H.C.)
Search for more papers by this authorFunding information: China Association for Science and Technology, Grant/Award Number: 17BJY231
Abstract
Applying the multiple indicators and multiple causes (MIMIC) approach, the present paper measured the size of the shadow economies in China's provinces over 1995–2016. The results show that the average size of the shadow economy in 30 provinces of China increased from 13.55% in 1995 to 14.39% in 2009, and then decreased to 12.30% in 2016. There are obvious variations in the size of the shadow economies in different districts of China. The average size of the shadow economy is lowest in provinces in the eastern district and highest in the western district. In addition, the causes and consequences of the shadow economies in China's provinces have also been analysed using the MIMIC approach, and the results show that tax burden, complexity of the tax system, intensity of regulation, unemployment, employment in the agricultural sector and economic openness have significant positive effects on China's shadow economy, while the ratio of direct taxes to indirect taxes, fiscal autonomy and income levels have significant negative effects on China's shadow economy. Using the growth rate of energy consumption as the benchmark indicator, the MIMIC analysis shows that the shadow economy has significant positive effects on the development of the official economy and income inequality while having a significant negative effect on the labour participation rate.
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