New estimate of shadow economy based on the total energy consumption. Evidence from the European Union countries

Estimating the shadow economy has become a significant concern for politicians, economists, and social scientists in recent times. Despite various advancements in methodology and empirical shreds of evidence, some areas remain unexplored. This article provides a valuable database on the estimations of the shadow economy in 26 EU countries for the period 2001-2021. We develop an innovative technique for measuring the shadow economy that is distinct from previous methods in the literature since it relies upon a modified version of the physical input approach. Instead of relying solely on electric power consumption, we consider the total final energy consumption, which encompasses all forms of energy utilized in the economy. In addition, advanced econometric modeling is performed through robust fixed effects LSDV model to delve into the credentials of our method. The main findings reveal significant variation in average levels of the shadow economy in the European Union, which range between 9.5% and 40% of the official GDP over the analyzed period. The developed database is intended to serve as a valuable resource for policymakers as they strive to combat economic crime. Its widespread utilization is anticipated, as a tool that will play an integral role in informing the development of effective policies and strategies in this critical area.