Shadow Economy and Do-it-Yourself Activities: The German Case

This paper presents a consistent structural equation (SEM) estimate of the size and development of the shadow economy and of do-it-yourself (DIY) activities in Germany from 1970 to 2005. By 2005, they reached a level of about 17% and 5% of official GDP. While the shadow economy has regularly increased over the years, DIY activities – though quite sizable – have remained more or less constant since the early 1990s. The driving forces for the shadow economy are regulation and tax burden, whereas for DIY activities the level of unemployment is the main factor.