Shadow economy in the business and entrepreneurial sectors

Abstract

Research to date on the shadow economy in South Eastern Europe and beyond has mainly focused on macro assessments of this phenomenon or on the socio-economic characteristics of individuals involved in these activities. There have been far fewer studies analysing the characteristics of businesses engaged in the shadow economy and the factors that drive them to operating informally. This chapter provides an analysis of the shadow economy in the business and entrepreneurial sectors using data from the Survey on Conditions for Doing Business in Serbia. This analysis is based on three indicators: (1) the share of business entities engaged in the shadow economy in the total number of business entities; (2) the share of informal workers in the total number of workers, both overall and by type; and (3) the share of cash payments in the total volume of payments. In addition to descriptive statistics that show how the shadow economy varies by key factors, the chapter provides econometric analysis identifying specific factors that are statistically significant in a company's decision to take part in the shadow economy.