This paper by Friedrich Schneider, published in July 2004, examines the shadow economy in 110 developing, transition, and developed OECD countries using the DYMIMIC approach. The average size of the shadow economy, expressed as a percentage of official GDP, is 41% in developing countries, 38% in transition countries, and 17% in OECD countries. The primary drivers of the shadow economy are increasing tax and social security contributions. The paper finds that a one percentage point increase in the shadow economy leads to a 0.6% decrease in the growth rate of official GDP in developing countries, a 0.8% increase in developed countries, and a 1.0% increase in transition countries. The author also discusses the theoretical considerations behind the shadow economy, the main causes of its existence, and its dynamic effects on the official economy. The results highlight the significant impact of tax burdens, social security contributions, and government regulation on the shadow economy. The paper concludes with policy implications and a summary of the findings.This paper by Friedrich Schneider, published in July 2004, examines the shadow economy in 110 developing, transition, and developed OECD countries using the DYMIMIC approach. The average size of the shadow economy, expressed as a percentage of official GDP, is 41% in developing countries, 38% in transition countries, and 17% in OECD countries. The primary drivers of the shadow economy are increasing tax and social security contributions. The paper finds that a one percentage point increase in the shadow economy leads to a 0.6% decrease in the growth rate of official GDP in developing countries, a 0.8% increase in developed countries, and a 1.0% increase in transition countries. The author also discusses the theoretical considerations behind the shadow economy, the main causes of its existence, and its dynamic effects on the official economy. The results highlight the significant impact of tax burdens, social security contributions, and government regulation on the shadow economy. The paper concludes with policy implications and a summary of the findings.