Shadow economy in Palestinian territories using currency demand approach
Keywords:Shadow economy, Broader money supply, M2, Taxes, Currency demand, Palestinian territories
The study aims at estimating the shadow economy (SE) using the method of demand for currency in Palestine for the period 2008–2018 by studying the relationship between a group of variables that affect the ratio of money traded outside the banking system to the money supply in the broad sense.
The study has adopted analytical and descriptive research methods to estimate SE in Palestinian territories. The data has been obtained from the inflation reports issued by the Palestinian Monetary Authority for ten years, from 2008 to 2018. A standard model was constructed using EViews version 8 for statistical data processing after converting the annual data to quarterly data.
The authors demonstrated that the size of the SE in Palestinian territories has varied over time, and the annual average of its size during the study period reached about $1764.893 (in millions). This amount constitutes about 15.5% of the gross domestic product. The study provides recommendations for reducing the size of the SE in Palestinian territories.
The current study shows that shadow economics could significantly matter for economic policy design by policymakers.
This study deals directly with Tanzi’s “estimation of shadow economy in Palestinian territories” concept and its impact on economic policies.
Al-Ajez, R. (2008), The Procedures Adopted by Banks in Gaza Strip to Supervise Money-Laundering Operation, Islamic University, Gaza.
Al-Mutairi, H. (2012), Measurement of the Size of the Hidden Economy and its Impact on Macroeconomic Variables with and Applied Study on the Kingdom of Saudi Arabia during the Period 1970-2009, Makkah Al-Mukarramah, Umm Al-Qura University, Khadoorie.
Al-Rafati, I. (2007), The Procedures of Combating Money Laundering and the Impact of Applying This on the Palestinian Banking, Islamic University-Gaza, Palestine.
Al-Subaie, F. (2011), The Hidden Economy in Saudi Arabia and its Effects: A Standard Study for the Period 1992-2008, King Abdul-Aziz University, Saudi Arabia.
Alghalth, M. (2012), “Political, economic and social effects of the tunnels phenomena on the community in Gaza strip from the point of view of the faculty staff at the Palestinian universities”, Journal of the Al-Quds Open University for Research and Studies, Vol. 27, pp. 271-300.
Amour, S. and Durgham, M. (2009), “The phenomena of the income tax evasion in Gaza strip: analytical Study”, Jordan Journal of Business Administration, Vol. 5 No. 2, pp. 204-233.
Buehn, A. (2012), “The Shadow Economy in German regions: an empirical assessment”, German Economic Review, Vol. 13, pp. 275-290.
Byun, S., Chung, H. and Baker, D. (2018), “Global patterns of the use of shadow education: student, family, and national influences”, Research in the Sociology of Education, Vol. 20, pp. 71-105.
Cagan, P. (1958), “The demand for currency relative to the total money supply”, Journal of Political Economy, Vol. 66 No. 3, pp. 302-328.
Celikay, F. (2020), “Dimensions of tax burden: a review on OECD countries”, Journal of Economics, Finance and Administrative Science, Vol. 25 No. 49, pp. 27-43, doi: 10.1108/JEFAS-12-2018-0138.
Chatterjee, S. and Turnovsky, S. (2018), “Remittances and the informal economy”, Journal of Development Economic, Vol. 133, pp. 66-83.
Chaudhuri, K., Schneider, F. and Chattopadhyay, S. (2006), “The size and development of the shadow economy an empirical investigation from states of India”, Journal of Development Economic, Vol. 80, pp. 428-443.
DellÂ´Anno, R. (2007), “The shadow economy in Portugal: an analysis with the MIMIC approach”, Journal of Applied Economics, Vol. 10, pp. 253-277.
D'Hernoncourt, J. and Meon, P. (2012), “The not so dark side of trust: does trust increase the size of the shadow economy”, Journal of Economic Behavior and Organization, Vol. 81, pp. 97-121.
Gulzar, A., Iqbal, N. and Haider, A. (2010), “What is hidden”, in, The Hidden Economy of Pakistan- Size, Causes, Issues and Implications?, Pakistan Society of Development Economists, Islamabad.
Guru, B.K. and Yadav, I.S. (2019), “Financial development and economic growth: panel evidence from BRICS”, Journal of Economics, Finance and Administrative Science, Vol. 24 No. 47, pp. 113-126, doi: 10.1108/JEFAS-12-2017-0125.
Halicioglu, F. (1999), “The black economy in Turkey: an empirical investigation”, Journal of Revolution Political Science, Vol. 53, pp. 147-158.
Hassan, G. (2005), “The size of the secret economy in Egypt through the causes and indicators: analytical quantitative study for the period 1966-2000”, New Horizons Journal of Commercial Studies, pp. 12-30.
Hassan, M. and Schneider, F. (2016), “Size and development of the shadow economies of 157 worldwide countries: updated and new measures from 1999 to 2013”, Journal of Global Economy, Vol. 4 No. 3, pp. 1-14.
Hildegart, A., Alvaredo, F. and Canavese, A. (2007), “The monetary method and the size of the shadow economy: a critical assessment”, The Review of Income and Wealth, Vol. 53 No. 8, pp. 363-371.
Jilani, O. (2007), The Hidden Economy in Libya Causes, Size, Economic Effects, Central Bank of Libya, Libya.
Kanao, K. and Hamori, S. (2010), “The size of the underground economy in Japan”, Economics Bulletin, AccessEcon, Vol. 30 No. 1, pp. 893-902.
Ladadwah, H. (2003), Sociology of the Informal Sector during the Al-Aqsa Intifada: A Means of Adaptation and Steadfastness, Palestinian Economic Policy Research Institute, Palestine.
Lars, F. and Schneider, F. (2010), “Survey on the shadow economy and undeclared earnings in OECD countries”, German Economic Review, Vol. 11 No. 2, pp. 109-149.
Levenson, A. and Besley, T. (1996), “The anatomy of an informal financial market: Rosca participation in Taiwan”, Journal of Development Economics, Vol. 51, pp. 45-68.
Mackinnon, J., Haug, A. and Michelis, L. (1999), “Numerical distribution functions of likelihood ratio tests for co-integration”, Journal of Applied Econometrics, Vol. 14, pp. 563-577.
Malki, M., Shalabi, Y., Ladadweh, H., Able Razeq, O. and Sarsour, S. (2004), Social and Economic Characteristics of the Informal Sector in the West Bank and Gaza Strip, Palestine Economic Policy Research Institute, Palestine.
Night, S. and Bananuka, J. (2020), “The mediating role of adoption of an electronic tax system in the relationship between attitude towards electronic tax system and tax compliance”, Journal of Economics, Finance and Administrative Science, Vol. 25 No. 49, pp. 73-88, doi: 10.1108/JEFAS-07-2018-0066.
PCBS (2019), Palestinian Statistics Reports 2008-2018, Palestinian Central Bureau of Statistics, Palestine.
PMA (2019), Palestinian Monetary Authority Reports 2008-2018, Palestinian Monetary Authority, Ramallah.
Reda, T. (2018), Analytical Study of the Shadow Economy in Algeria since, University Mohamed Boudiaf–Msila, Algeria.
Schneider, F. (2008), The Shadow Economies in Central and South America with a Specific Focus on Brazil and Columbia: What Do We Know?, Instituto Brasileiro de Etica Concorrencial, Shadow Economy, Rio de Janeiro, Brazil.
Schneider, F. and Buehn, A. (2012), “Shadow economies around the world: novel insights, accepted knowledge, and new estimates”, Journal of International Tax Public Finance, Vol. 19, pp. 139-171.
Schneider, F. and Enste, D. (2000), “Shadow economies: size, causes and consequences”, Journal Economics Literature, Vol. 38 No. 1, pp. 77-114.
Schneider, F., Raczkowski, K. and Mróz, B. (2015), “Shadow economy and tax evasion in the EU”, Journal of Money Laundering Control, Vol. 18 No. 1, pp. 34-51.
Studenmund, A. (2006), Using Econometrics: A Practical Guide, 5th ed., Addison Wesley Longman, USA.
Tanzi, V. (1980), “The underground economy in the United States: estimates and implications”, PSL Quarterly Review, Vol. 33, p. 135.
Virta, H. (2010), “The linkage between corruption and shadow economy size: does geography matter”, International Journal of Development Issues, Vol. 9 No. 1, pp. 4-24.
Vousinas, G. (2017), “Shadow economy and tax evasion. The Achilles heel of Greek economy. Determinants, effects and policy proposals”, Journal of Money Laundering Control, Vol. 20 No. 4, pp. 386-404.
Williams, C. and Horodnic, I. (2016), “Beyond the marginalization thesis”, Journal of Economic Studies, Vol. 43 No. 3, pp. 400-417.
Wiseman, T. (2015), “Entrepreneurship, corruption, and the size of US underground economies”, Journal of Entrepreneurship and Public Policy, Vol. 4 No. 3, pp. 313-330.
Yahyaoui, N. (2016), “The informal economy in Algeria: size, causes and consequences”, Journal of Financial, Accounting and Administrative Studies, Vol. 6, pp. 290-307.
Yap, W., Sarmidi, T., Shaari, A. and Said, F. (2018), “Income inequality and shadow economy: a nonparametric and semiparametric analysis”, Journal of Economic Studies, Vol. 45 No. 1, pp. 2-13.
How to Cite
Copyright (c) 2022 Mohammad Kamal Abuamsha, S. Shumali
This work is licensed under a Creative Commons Attribution 4.0 International License.