Does the shadow economy matter for tourism consumption? New global evidence

This paper analyses the effects of the shadow economy on the total tourism spending of citizens for 84 countries from 1995 to 2017. The empirical framework is that of panel quantile regression with fixed effects. We also analyse the simultaneous effects of the shadow economy on domestic and outbound tourism spending using seemingly unrelated regressions. We first show that increases in the shadow economy appear to reduce total tourism spending: the increases are less dominant in countries with higher levels of travel activities. Moreover, the shadow economy negatively affects domestic and outbound tourism spending in the global sample, while different effects exist in subsamples. Lastly, we show that for the two sub-periods (1995-2007 and 2008-2017), the effects of the shadow economy on total tourism spending are mostly consistent in both periods except for statistically insignificant effects in the case of low- and lower-middle-income countries. The effects of the shadow economy on domestic and outbound tourism are also consistent in the two periods. However, the shadow economy exerted a significant positive impact on outbound tourism for upper-middle-income countries after the 2008 global financial crisis.