Structure of the model

Discussions about the shadow economy often focus on single aspects of its development. Economists base their analysis primarily on neoclassical theory, whereas in the social sciences different unilateral theories compete with one another. Furthermore, one frequently discovers purely descriptive approaches that neglect the analytical aspects. In addition, authors tend to focus on their own scientific field, which does not do justice to the complexity of the phenomenon. As the shadow economy cannot be explained by economic theory alone, an integrative approach will be introduced in the following chapters, allowing a thorough and differentiated analysis of causes.

Synergy effects of an integrative approach

The studies by Bernard de Mandelville (1670–1733), Adam Smith (1723–90), Jeremy Bentham (1748–1832), and James Mill (1773–1826), as well as by the Austrians (e.g., Menger; Böhm-Bawerk), are not restricted to a unilateral approach. Smith had already thoroughly analysed the socio-psychological correlations (Theory of the moral sentiments, 1759) long before publishing An enquiry into the nature and causes of the wealth of nations (1776). Similarly to Mandelville (1732), the author investigated human behaviour as such (preferences and egoism), and did not confine himself to merely observing exchange on markets (the famous ‘invisible hand’). Hayek (1969) points to this tradition and emphasises Methodological Individualism, which forms the basis for a stronger integration of economic and social sciences.