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Mr. Yasser Abdih and Leandro Medina

. However, there may exist more than one manifestation or symptom of the informal economy showing up simultaneously. The MIMIC approach used in this paper explicitly considers various causes, as well as several effects of the informal economy. The model exploits the associations between observables causes and observable effects of the unobserved informal economy to estimate the size of the informal economy itself. 4 The model can be described as: y = λ ⁢ IE + ε ( 1 ) IE

Leandro Medina, Mr. Andrew W Jonelis, and Mehmet Cangul

consumption or money demand. However, there may exist more than one manifestation or symptom of the informal economy showing up simultaneously. This paper uses the MIMIC approach, as it explicitly considers various causes, as well as several effects of the informal economy. The model exploits the associations between observable causes and effects of the unobserved informal economy to estimate the size of the informal economy itself. 10 The model can be described as: y = λ I E + ε ( 1

Mr. Yasser Abdih and Leandro Medina
This study estimates the size of the informal economy, and the relative contribution of each underlying factor, for the Caucasus and Central Asia countries in 2008. Using a Multiple Indicator-Multiple Cause model, we find that a burdensome tax system, rigid labor market, low institutional quality, and excessive regulation in financial and products markets are determinant factors in explaining the size of the informal economy, which ranges from 26 percent of GDP in Kyrgyz Republic to around 35 percent of GDP in Armenia. Furthermore, the results show that higher levels of informality increase the levels of self employment and the percentage of currency held outside the banking system.
Mr. Yasser Abdih and Leandro Medina
Mr. Ben Kelmanson, Koralai Kirabaeva, Leandro Medina, and Jason Weiss
This paper examines the drivers, and reestimates the size of shadow economies in Europe, with a focus on the emerging economies, and recommends policies to increase formality. The size of shadow economies declined across Europe in recent years but remains significant, especially in Eastern Europe. In the emerging European economies, the key determinants of shadow economy size are regulatory quality, government effectiveness, and human capital. The paper argues that a comprehensive package of reforms, focused on country-specific drivers, is needed to successfully combat the shadow economy. The menu of policies most relevant for Europe’s emerging economies include: reducing regulatory and administrative burdens, promoting transparency and improving government effectiveness, as well as improving tax compliance, automating procedures, and promoting electronic payments.
Leandro Medina, Mr. Andrew W Jonelis, and Mehmet Cangul
The multiple indicator-multiple cause (MIMIC) method is a well-established tool for measuring informal economic activity. However, it has been criticized because GDP is used both as a cause and indicator variable. To address this issue, this paper applies for the first time the light intensity approach (instead of GDP). It also uses the Predictive Mean Matching (PMM) method to estimate the size of the informal economy for Sub-Saharan African countries over 24 years. Results suggest that informal economy in Sub-Saharan Africa remains among the largest in the world, although this share has been very gradually declining. It also finds significant heterogeneity, with informality ranging from a low of 20 to 25 percent in Mauritius, South Africa and Namibia to a high of 50 to 65 percent in Benin, Tanzania and Nigeria.
Mr. Ben Kelmanson, Koralai Kirabaeva, Leandro Medina, and Jason Weiss

.69 470.01 226.12 Observations 358 357 357 160 Countries 40 40 40 40 Years 2006-13 2006-13 2006-13 2011-13 *** p<0.01 ** p<0.05 * p<0.1 Sources: IMF staff calculations. Appendix II. MIMIC Model The model exploits the associations between observable causes and effects of the unobserved informal economy to estimate the size of the informal economy itself. 23 The model can be described as: y = λ I E + ε ( 1 ) I