We also construct an alternative measure of underground economy.
Following a standard approach of the literature, we proxy underground
activities by calculating the fraction of income received in cash. The idea
is that informal activities give rise to cash transactions. As our first
indicator, this variable is based on the following question available in
the SHIW: Last year, did you receive part of your (or your family) income
in cash? and in which fraction? As other proxies, this indicator has some
limitations. One limitation is that it might be associated with different
payment technologies, which may themselves be related to the level
of local financial development. For this reason we use this variable
only as a robustness check.