L’economia non osservata fra evasione e crimine: una rivisitazione del Currency Demand Approach con una applicazione al contesto italiano

This study contributes to the debate on estimating the size of the underground economy, by proposing a reinterpretation of the Currency Demand Approach (CDA). Three main innovations are introduced. First, a direct measure of cash transactions is taken as dependent variable in the money demand equation. Second, indicators of detected tax evasion substitute difficult-to-find proxies for all the relevant determinants of noncompliance. Third, a control for cash used in criminal activities is introduced. The application of this ‘modified-CDA’ to Italian provinces reveals that the provinces in the Centre-North exhibit a higher incidence on GDP of both the underground economy and the illegal production.