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In their 2018 Journal of Macroeconomics article “Measuring the Size of the Shadow Economy Using a Dynamic General Equilibrium Model with Trends,” Mario Solis-Garcia and Yingtong Xie propose a method for measuring the size and dynamics of the shadow economy. We show that the method does not serve its purpose because once correctly implemented it generates a constant ratio of shadow to formal production, which is equal to a base-year estimate taken from an external source.
Response to this article by Mario Solis-Garcia and Yingtong Xie: Response to “Comment on Measuring the Size of the Shadow Economy Using a Dynamic General Equilibrium Model with Trends” (EJW, March 2022).