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Understanding the shadow economy in Central and Eastern Europe using the currency-demand approach: a regional perspective

Year: 2026

Type: article

Abstract: This paper uses the currency-demand approach to study regional disparities in the shadow economy across Central and Eastern Europe over the period 2001–21. The empirical strategy is deliberately sequential. First, we estimate a national cash-demand benchmark using a pooled mean group autoregressive distributed lag model (PMG-ARDL). Second, we convert excess cash into shadow gross domestic product (GDP) under three alternative money–velocity assumptions. Third, we allocate the national baseline estimate across NUTS-2 regions through a structural rule that preserves national totals exactly. The results show robust cross-country differences, sizeable within-country heterogeneity and relatively stable spatial rankings across alternative conversion scenarios.

Source: Regional Studies

DOI: 10.1080/00343404.2026.2702098

Authors: Marina-Diana Agafiței, Roberto Dell’Anno, Adriana Anamaria Davidescu

Institutions: Bucharest University of Economic Studies, University of Salerno

Language: English

Topic: Taxation and Compliance Studies

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Decent work and economic growth

Open Access status: hybrid

Funders: European Commission, HORIZON EUROPE Marie Sklodowska-Curie Actions