The Shadow Economy, an Enigma, in the Agriculture of 15 EU Member States over the Period 1996–2019

Abstract

The focus of this review is the shadow economy (SE) in agriculture. Our research aim is to empirically quantify the SE in the agricultural sector based on data collected in the EU-15 member states from 1996 to 2019. We apply the multiple indicators multiple causes model to estimate the levels and development of the SE in these countries. Furthermore, we investigate how the size of the agricultural SE differs between the EU-15 member states and how it affects the economy overall. The results show that (a) the main potential for SE lies in agricultural subsidies, the effects of taxation, the share of imports, and factor income in agriculture; (b) certain patterns and differences exist among the countries, which can be associated with the north-south-west divide; and (c) there are higher levels of SEs in agriculture compared to in the overall economies. This review emphasizes the potential for measuring the SE in agriculture, while recognizing current methodological limitations. Recommendations include diversifying methods, standardizing definitions internationally, and enhancing theoretical foundations. Furthermore, expanding research to include more regions and improve visibility and transparency in measurements is crucial if informed policy is to be made to benefit agriculture globally.