Abstract

The purpose of this empirical study is to estimate the size of the shadow economy and its trend for countries in the Association of the South East Asian Nations (ASEAN), except Singapore and Brunei, for the period from 1995 to 2014. While other approaches, which can be used for the same purpose, such as a monetary demand approach or an electricity consumption approach only focus on one indicator/factor, an extensive economic literature review indicates that the shadow economy is affected by various factors such as production, labour and monetary market. In this study, a MIMIC approach is adopted to estimate the size of the shadow economy and its trend for the ASEAN nations including Vietnam. The findings from this study indicate that the shadow economy of Viet Nam lies between 25 per cent and 30 per cent of the official economy for the period from 1995 to 2014, given the base year estimate of 15.8 per cent in 1999 being adopted. A deep concern is that this size of the shadow economy in Vietnam has been on a rise at a more significant level over the last 20 years, from 1995 to 2014 in comparison with other countries in the sample. Findings from this study also present evidence that tax rate, labour freedom, and business freedom have provided significant effect to the shadow economy of the ASEAN countries. Implications for macroeconomic policies in Vietnam, in particular, and for other ASEAN nations, in general, are that reducing the shadow economy of the ASEAN nations requires a larger degree of labour and business freedom. In addition, the government may also need to consider lowering the tax rate in the economy.

This work is licensed under a Creative Commons Attribution 4.0 License.