Abstract
How large the non-observed economy (NOE) is and what determines its size in different countries and regions of the world is a question that has been and continues to be much studied by many observers (Schneider and Enste, 2000, 2002)2. The size of this sector in an economy has important ramifications. One is that it negatively affects the ability of a nation to collect taxes to support its public sector. The inability to provide public services can in turn lead more economic agents to move into the non-observed sector (Johnson, Kaufmann, and Shleifer, 1997). When such a sector is associated with criminal or corrupt activities it may undermine social capital and broader social cohesion (Putnam, 1993), which in turn may damage economic growth (Knack and Keefer, 1997; Zak and Knack, 2001). Furthermore, as international aid programs are tied to official measures of the size of economies, these can be distorted by wide variations in the relative sizes of the NOE across different countries, especially among the developing economies.
Many terms have been used for the non-observed economy, including informal, unofficial, shadow, irregular, underground, subterranean, black, hidden, occult, illegal, and others. Generally these terms have been used interchangeably. However, in this paper we will make distinctions between some of these and thus we prefer to use the more neutral descriptor, non-observed economy, adopted for formal use by the UN System of National Accounts (SNA) (see Calzaroni and Ronconi, 1999; Blades and Roberts, 2002).
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Ahmed, E., Rosser, J.B., Rosser, M.V. (2007). Income Inequality, Corruption, and the Non-Observed Economy: A Global Perspective. In: Complexity Hints for Economic Policy. New Economic Windows. Springer, Milano. https://doi.org/10.1007/978-88-470-0534-1_12
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