size and causes of the shadow economy in iran: an analysis with the mimic approach

This study aims to estimate the size of the iranian shadoweconomy (se) using the multiple indicators multiple causes(mimic) approach, a variant of the structural equation modeling(sem) approach. the application of the mimic approach allowsfor the consideration of established drivers of the se as well aspotential causes that might be of particular importance to theiranian se, namely inflation and the size of the construction sectorin the economy, the latter of which is considered in this study forthe first time. the significant determinants of the iranian se arefound to be inflation, unemployment, trade openness, and the sizeof the construction sector. the se is also found to be positivelyrelated to cash usage and negatively related to the labor forceparticipation rate and the iranian gdp. using annual data for the1979-2019 period, our empirical results show that after an initialsurge in se size during the iran-iraq war (1980-1988), the iranianse generally decreased, although fluctuations were also present.the average se size during the entire studied period of 1979-2019is found to be 31.83% of gdp.