Estimación de la informalidad económica en Paraguay con el índice Tanzi–Feige. Periodo de análisis marzo 2020 a noviembre 2024

armoa garcia, roger roman (2025): Estimación de la informalidad económica en Paraguay con el índice Tanzi–Feige. Periodo de análisis marzo 2020 a noviembre 2024.

Abstract

This study estimates a monthly index of economic informality for Paraguay using the currency-demand shadow economy framework (Tanzi–Feige). We specify a log-linear cash demand function that includes the real interest rate, the price level (CPI), economic activity (GDP), and tax pressure.Series are transformed (logs and first differences where appropriate) based on ADF/KPSS tests; we also control for seasonality and outliers to support robust inference. The model’s unexplained component is interpreted as a monetary proxy for informality and is normalized to construct the index. Unlike simple accounting ratios (e.g., currency/M2), this approach adjusts for income, prices, and the opportunity cost of holding cash, isolating deviations attributable to the shadow economy.

As an extension, we assessed including cooperative credit (CAC) to capture channels parallel to the formal banking system; we found no severe multicollinearity with tax pressure but (at most) moderate correlation, but we excluded CAC from the main specification due to heavy tails and heteroskedasticity. The results yield a parsimonious and stable index across sensitivity exercises (alternative specifications and diagnostic validation), and we discuss policy implications for tax design and payment traceability, together with limitations and avenues for future research.

• Item Type: MPRA Paper
• English Title: Estimation of Economic Informality in Paraguay with the Tanzi–Feige Index. Analysis Period March 2020 to November 2024
• Language: Spanish
• Keywords: economic informality, shadow money model, Tanzi–Feige, cash demand, underground economy, econometric estimation, Paraguay
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E26 - Informal Economy ; Underground Economy; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E41 - Demand for Money; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H26 - Tax Evasion and Avoidance; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements

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