ASSESSING ECONOMIC ACTIVITIES ¡V AN EXAMPLE FROM CENTRAL BUSINESS DISTRICTS

Keywords:

whether they are published or not. The documents may come

A. INRODUCTION

The CBD has been experiencing drastic changes in its physical structure and the economic activities taking places within it. The two leading cities of London and New York are quite different in the specialization of their CBD economic activities.

Common features are that both have experienced considerable structural change away from manufacturing to service growth industries, and dispersal of manufacturing-space activities, along with the simultaneous concentration of financial and service activities within their borders.

This process of simultaneous agglomeration and dispersal is a manifestation of the linkage of CBD economic activities to a global economy dominated by New York and London.

It is very difficult to measure or assess CBD economic activities successfully, since they are quite complicated and rely on many factors for which the important data is usually not available. Thus, planners have little chance of predicting the future as well. However, apparent characteristics are useful in directing planners measuring and assessing CBD economic activities for decision-making [START_REF] Healey | Collaborative Planning: Shaping Places in Fragmented Societies[END_REF]Lee and Wills, 1997;Dunning, 1971, p.47).

Most available CBD literature is based on the fact that financial services are intangible, hence unproductive compared to manufacturing. As such, data on the CBD is not readily available and the reason given is the difficulty of measuring financial services, and the rapid changes characteristic of the CBD. Thus, the CBD poses a great many difficulties to planners whose knowledge of what is happening in the CBD is very limited. If planning intervention in the CBD is to be effective, then there is a need to know more about the physical distribution of activities and patterns of specialization, and also how these activities are linked.

More than a century ago the CBD was an area of multiple uses, residential, commercial, industrial, institutional, and financial. But with the passage of time, overcrowding, the need for specialization, and obsolescence led first to a decline in residential use and later to declines in manufacturing and wholesaling (Lee and Wills, 1997;Murphy,1971). These locational changes have been evident in most cities in the developed countries, where the CBD is now devoted to commercial banks, insurance companies, securities dealers and brokers, savings institutions, finance companies, investment companies, clearing houses, and securities exchanges [START_REF] Bishop | Collaboration and firm size: some evidence from the UK defence industry[END_REF]Williams et al., 2001;Robins and Terleckyj, 1960). The spatial locations of and linkages between these financial services have been and are still changing over time.

Contributing to these changes is the fact that CBD activities are heavily influenced by the opening-up of economies. National and international forces shaping both the demand for goods and services and the supply of resources, combine to determine economic activities within the CBD. The opening-up of economies determines the patterns of physical and economic changes in the CBD.

Given all these problems associated with the changing character of the CBD, planners are therefore faced with a situation in which they have to plan with scant information, but must exercise a great deal of flexibility to meet the needs of Section 4 gives concluding remarks.

B. MEASURING ECONOMIC ACTIVITIES IN THE CBD a. Land-use indicators

The main determinant of locational decisions in the CBD is land price as compared to planning intervention. Thus, information on the use of land, territorial specialization, and the interactions in space among the various activities is crucial for the planner. Unfortunately, such information is usually difficult to capture.

i. Rateable values/rents

Due to the rising demand in the CBD, the general trend has been that rateable values in the city center rise faster than those in the rest of the city. High land prices determine which users will locate where, and its only those that can afford the high costs of land remain in the CBD. This explains why the residential function of the CBD has declined rapidly and office activities have taken over. Knowledge of rateable value trends enables the planner to assess which activities should be allowed to locate given their output. Unfortunately, data on output is never available to the planner, which makes use of this indicator difficult.

ii. Floor space Data on floor space can be captured through land-use surveys. (1971, p.31) noted about the city of London that "In 1939, office accommodation accounted for 45 percent of the floor space of the city, by 1957, this had risen to 59 percent, and by 1968 to 62 percent. By contrast the floor space occupied by warehousing and industry has fallen dramatically, in both absolute and relative terms. In 1939, these activities were spread over an estimated 32 million sq. ft., or 38 percent of the total floor space in the city, and by 1968, this area had more than halved to 15.5 million sq.

ft., that is, just over one fifth of the floor space".

Although land-use surveys are difficult to carry out regularly, they are also useful in assessing the amount of vacant office space as compared to occupied space.

Different rates of land utilization can be observed amongst the different areas of specialization, and this reflects on demand conditions and the incidence of use zoning and the application of "change of use" controls. Innovations in technology have however helped enable planners to easily store, update, and analyze data.

iii. Resident population in the CBD

Several studies have examined the population declines in metropolitan cores and [START_REF] Assane | Institutional framework and economic development: international evidence[END_REF][START_REF] Healey | Collaborative Planning: Shaping Places in Fragmented Societies[END_REF][START_REF] Law | The Uncertain Future of the Urban Core[END_REF].

These population changes bear on transport management, hence planners should keep track of these trends to ensure that adequate transport facilities are provided for commuters.

b. Economic indicators i. Employment -Working population

The changes in employment location and distribution of employment by sector within the CBD and in relation to the rest of the city/country provide vital statistics for assessing economic activities within the CBD. Such information is normally easily accessible from Population Censuses. Absolute employment figures may

show declines, but one must look at sectoral changes since cores will have some declining industries and also many growing industries.

The case study in Table 1 below shows that all the cities surveyed, except Pittsburgh, experienced loses in their core areas and all cities, except Lille and Pittsburgh again, had declining job shares in their core areas (United Nations, 2005).

It should be noted though that too much significance should not be read into differences in the rates of change between cities as this may partly reflect differences in definition. A closer look at sectoral employment changes for Baltimore highlights the fact referred to above that core areas are losing manufacturing employment but gaining service sector employment. also considered. This will reflect on the territorial specialization of the core and hence reveal the dominance of particular uses in distinct parts of the CBD. Once these clusters have been established, the planner must investigate the linkages between them in order to determine which activities gain most by being linked with one another, and so, find it most profitable to be located in particular parts of the CBD.

The issue of linkages is discussed in detail below.

ii. Productivity -value added

Another measure of growth besides employment is value added, a dollar figure made up principally of firms' payrolls, interest payments, and profits (Hayter,1997, Dunning andMorgan, 1971). The problem planners face in using such a measure is that it merely gives a firm's growth pattern without linking its growth to space.

Although it has never been tried by most researchers on this subject, it would be useful if output per square meter could be calculated. An avenue yet to be explored is attempting to link income tax figures to firms' locations; it is possible that this could show the spatial intensity of services, thus enabling planners to know which part of the CBD are more productive. Although it is generally believed that the productivity of financial services is difficult to measure, a firm's rate of return can serve well in determining the productivity of the firm.

c. Transport surveys

The decentralization of population, employment, manufacturing and commercial services can be viewed as the latest episode in the interaction between transport technology and urban form dating from the onset of the Industrial Revolution [START_REF] Law | The Uncertain Future of the Urban Core[END_REF]. The CBD is now characterized by congestion and delays as a result of the massive inflow of people to the hub of activity. As a result, planners must devise efficient transport management systems for use in the CBD. The basic function of a transport system is moving people from suburbs to the CBD, and an insufficient and CBDs, but this has not proven to be the solution. In fact, the result has been to spread congestion wider as firms relocate their labour-intensive activities to new centers in other sections, while their headquarters remain in the CBD. All these have serious implications for the provision of transport thus, planning intervention of this nature must take cognizance of transportation systems.

d. Communication linkages

It was mentioned above that measuring economic activities within the CBD without establishing how these activities are linked does not help planners make valuable assessments of these activities. Financial services are characterized by uncertainty, so they need to cluster in order to operate with maximum efficiency.

"Uncertainty aggravates the need for fast and frequent communication, both in negotiating for transactions and in keeping abreast of developments affecting the market" [START_REF] Carter | Changing trade patterns in major OECD countries[END_REF][START_REF] Price | Aggregate uncertainty, investment and asymmetric adjustment in the UK manufacturing sector[END_REF]Robbins and Terlecky, 1960, p.33).

Communication linkages can be determined by analyzing information flows between the various firms in the CBD. Information flows can be measured according to type and associated communication channels, for example, paper flows, personal contacts involving travel, and electronic communication like the telephone and telex (Williams et al., 2001, p. 86;Goddard, 1975, p.24).

A survey was done in Central London in 1970 in order to determine the pattern of information flows between various office sectors. A sample of 72 office establishments recorded details of their telephone calls and meetings with other firms with similar patterns of functional linkages, and pairs of sectors that received information from similar types of establishments. "Information was obtained in the analysis of number of indicators on which a policy of selective decentralization could be based" (Goddard, 1975, p.28). Such data can also be used to suggest how complexes of related office activities can be established in alternative centers outside the capital through the relocation of groups with interlinked functions.

It has been argued that improvements in technology reduce the cost and delays of communicating over long distances, and it is believed that technological advancement is a threat to existing financial centers since it will promote decentralization.

However, [START_REF] Brealey | The Location of Financial Service[END_REF] states that "the popular vision that improved communications will permit decentralization with personal contacts being replaced by video-conferencing and traders operating from home terminals is, we believe, to misunderstand the effect of improved communication" (Brealey,1992, p.32).

e. Social security and human security

Implications for social security and human security in the CBD, which has experienced transition from a manufacturing-based economy to a services-led economy oriented toward the global market have come to be known as the "Dual

City" theory [START_REF] Castells | The Informal City[END_REF]. The rise of the dual city is a result of economic restructuring fuelled by technological innovation that spurred the growth of producer services, which led in turn led to growth in the production of information technology.

What impact has this had on the urban social security and human security? Castells (1989, p.203) notes that, "…processes of sectoral growth and decline, and the reallocation of jobs and labour are taking place…in a complex pattern that combines the creation of new, highly paid jobs in advanced services (producer services) and high technology sectors, the destruction of middle level jobs in old manufacturing, the gradual shrinkage of protected jobs in the public sector, and the proliferation of new, low-paid jobs both in services and in downgraded manufacturing".

On the spatial level the dual city is manifested in the coexistence of a large and the conflictual appropriation of the inner city social groups who share the same space while being worlds apart in terms of lifestyle and structural position within the city [START_REF] Castells | The Informal City[END_REF] Developments in the casualisation of employment, as in the cases of London and New York, point to the institutionalization of casual labour markets. In New York, the informal economy has the overall effect of cheapening production costs for firms, while also increasing the flexibility of the production organization. The presence of many "informal" business (especially, traditional sweatshop garment production)

activities in densely populated areas with high immigrant populations also substantially reduces the costs of reproduction for inner city workers. In London, the casualisation of employment has resulted in the privatization of services once provided by the state. Jobs that were once full-time with a full array of benefits have been transformed into part-time subcontracted work at lower wages.

However there was a substantial increase in job creation in general in the inner areas of global cities, particularly during the 1980s [START_REF] Carter | Changing trade patterns in major OECD countries[END_REF][START_REF] Castells | The Informal City[END_REF]. Interestingly, in New York and London, the increasing employment rate continues to grow despite the influx of hundreds of thousands of immigrants into these rapidly growing economies. With growth occurring in the formal as well as informal segments of the economy, there follows a highly differentiated social structure, both polarized and fragmented, with segments divided on the basis of class, gender, race, and national origin (Sassen, 1993). [START_REF] Fingleton | Towards applied geographical economics: modelling relative wage rates, incomes and prices for the regions of Great Britain[END_REF]), Li (1996) and Sassen (1993) suggest that in both cities, apart from migrations that may have taken place in these cities, what we observed in recent times is a process that requires specific conditions: the internationalization of the economies of these countries, Therefore, restructuring is often a painful process that may result in whole sections of the old work force becoming redundant as in the case of middle-level manufacturing workers in the UK. The swing to producer services has made up for these losses in economies in more stable developed countries. However, cities like

Bombay, which has massive potential, and Indian cities in general face a far more serious problem in that their political conditions are far less stable, and the problems created by the liberalising of the economy of the CBD in the short term may well cause serious social disturbances and threaten the power of the Indian government.

C. THE CHANGING NATURE OF THE CBD, NEW YORK METROPOLITAN REGION AND THE CITY OF LONDON a. The New York Metropolitan Region

The New York Metropolitan Region, whose locational advantage was originally its natural harbour, is now the financial center not only of the United States, but of the rest of the world. Initially, it had an enormous amount of rentable space, an amazingly varied supply of industrial materials and services, an extremely diversified labour force, and extensive transportation facilities [START_REF] Hayter | The Dynamics of Industrial Location[END_REF][START_REF] Vernon | External economies[END_REF].

By the early 1970s these advantages no longer applied, as the region was beginning to specialize in services including commercial banks, insurance companies, securities dealers and brokers, savings institutions, finance companies, investment companies, clearing houses and securities exchanges (Robins and Terleckyj, 1960). By 2000, finance and insurance employed 460,000 people and accounted directly for 11 percent of employment [START_REF] Knox | The geography of the World Economy (Fourth Edition)[END_REF].

The main reasons given for financial activities concentrating in the CBD have The combination of these holds firms in the financial district as long as there are no strong reasons for them to go elsewhere. The pressure to move out of the region has meant the rapid economic growth of other areas. "Over time, factors such as nearness to customers, the cost of office space, the cost of labour, and the supply of manpower can be expected to bear increasingly upon locational decisions" (Hayter, 1997, p.30;Robins and Terleckyj,1960, p.45).

b. City of London

Up to the end of the 19 th Century the City of London did not have complete specialization. The city started to witness a shift from manufacturing to financial services by the beginning of the 20 th Century. Over the years the city has not only become specialized in the services it provides but also in the functions supplied by its firms. The city developed into an international financial center for more or less the same reasons given for the New York Metropolitan Region.

The Impact of Government Policy on City Development

There , 1997;GLC, 1988;GLC, 1985), but whether it recognizes a need for selective appropriateness in the center has yet to be assessed" (Goddard, 1975, p.23). After all this effort to decentralize office activity from the CBD, it was realized that a majority of firms still found the advantages of locating in Central London outweighed the extra labour costs and rents, and the advantages of decentralizing.

D. CONCLUSION

The CBD is a dynamic part of the city that changes drastically over time, and responds to forces and demands for activities from within and from other countries.

The globalization of economies has meant that the city no longer serves only the interests of its inhabitants, it also serves other international business interests. The CBD has changed from accommodating activities like manufacturing to being predominantly a services area. CBD must be more innovative and accommodating if it is to meet the needs of the business community.

  developers in the CBD. It has become apparent that the planning regulations and standards in general use for the entire city do not particularly apply to the peculiar nature of the CBD. The indicators that could be used to measure and assess economic activities in the CBD and hence assist planners in decision-making are: a. Land-use indicators b. Economic indicators c. Transport surveys d. Communication linkages e. Social security or human security These are examined in Section 2 of this paper. The third section of the paper within the context of the city of London and the New York Metropolitan Region. This brief historical review of the two CBDs highlights the changing nature of the CBD, and some of the factors which, although not quantifiable (hence not normally considered by planners), determine locational decisions by most firms within the CBD. The role of government policy in shaping the CBD, and the conflict between market forces and planning intervention are also considered.

  shares of the totals within urban regions. An analysis of the trends in population change within the CBD reflects the effect of rising land values, planning intervention in the form of redevelopment plans that have resulted in the conversion of residential areas to other uses, and lack of housing type choices in city centres

  raises the cost of labour. Using transport surveys and traffic counts planners can assess the demand for and supply of public and private transport, and hence efficiently manage the traffic system within the CBD. Some governments have attempted to solve congestion problems by relocating

  middle-class and a growing urban underclass, and epitomizes the contradictory development of the new information-based economy,

  the major cities, and the casualisation of the employment relation.

  of external factors which, among others, include: i. access to trained labour ii. range of supporting services iii. the value of face-to-face contact iv. the centre's reputation v. low search costs

  have been central government controls on office development in the City since 1964, yet few objective criteria have been formulated to assess the appropriateness of one type of office activity over another in central locations. "The Greater London Development Plan has declared "the opportunity to develop" as a key objective (Lee and Wills

  As a resultDunning (1971) notes, although the influence of local and central government policy on the pace and pattern of development has been increasing, it has been restraining development by merely concerning itself with safeguarding buildings and accommodation standards without considering the market forces in play. A Redevelopment Plan produced after the First World War, had as its main objective, maintaining a good balance between the amount of accommodation space and the amount of circulation space in the city. Thus, emphasis was on controlling the growth of the city.The 1943 Abercrombie Plan proposed the dispersal of a million people from Greater London. The idea was to reduce residential floor space and increase office floor space. Although this was a step in the right direction in terms of promoting economic activities in the CBD, the issuing of Industrial Development Certificates at the Central Government level for firms wishing to develop 5000 sq. ft. or more was a drawback for most firms. Again, the issuing of Office Development Permits (ODP), which was aimed at reducing congestion and employment in the City of London, had shortcomings as well. The policy initially took too much stock of vacant open space and hence refused any applications for new developments, and took too little stock of increases in demand. As a result, demand eventually overtook supply. Planners were then compelled to exercise flexibility in order to cope with the rising demand for office space in the city. As Dunning puts it, "Even though they know more than the market about the best distribution of land use in the city. Indeed, we strongly suspect the ODPs have introduced an element of rigidity into the market in that supply has not been allowed to adjust itself to demand in the way that would best utilize scarce resources"(Dunning and Morgan, 1971, p.227).Operating hand in hand with the ODPs, were the Location of Office Bureau(1963), which encouraged decentralization of office activity from Central London.

  It is extremely difficult to quantify the various propositions for measuring economic activities in the CBD put forward in this study due to the paucity of statistical data as well as the constraint of trying to assess economic activities that reside in the uncertainty surrounding financial services. Planning intervention thus becomes extremely difficult as other forces beyond the control or knowledge of the planner play crucial roles in determining what activities will locate in the CBD and where exactly they will locate.Land-use regulations are also crude and do not allow planners to see the activities' micro-disaggregated interactions. This makes it difficult for planners to use such regulations in assessing and planning for the CBD. Planners have had to introduce certain criteria in assessing applications planned for the CBD such as use of the Special Consent Criteria and Change of Use Regulations, which allow certain buildings or activities that would not normally be allowed by existing use zones and plans, to be considered. Restrictions on building heights and coverages have had to be adjusted to suit the increasing demand for space in the CBD. Planning within the

Table 1 : Employment Change in Metropolitan Cores

 1

	Employ ment (000)		Change% Share Of Area	%
	Baltimore 1990	436 2003	401	-8.0	1990	36.7	2003 32.8

Table 2 : Baltimore: Private Sector Employment in the Central City

 2 Readings inUrban economics, USA: The Macmillan Company. Williams, K., Elizabeth, B. and Mike, J. (eds) (2001) Achieving Sustainable Urban Form, London:Spon Press. Sassen (1993). The Global City: New York, London, Tokyo, Princeton: Princeton University Press. United Nations, (2005). Fifth Population Enquiry among Governments: Monitoring Government Perceptions and Policies on Demographic Trends and Levels in Relation to Development of

		1982-2004
		1982	1992	2004	Change (%)
	Total	285,460	312,138	320,377	-21.7
	Manufacturing	59,691	44,982	28,142	-52.3
	Transport	30,093	26,419	18,994	-36.9
	Wholesale	19,292	17,149	12,194	-36.8
	Retail	44,279	33,498	25,014	-43.5
	Fire*	31,528	30,097	34,989	+11
	Services	92,201	108,341	132,572	+43.8
	Health	35,469	48,652	68,472	+93

Note:*Finance, Insurance and real Estate Source: Adapted from United Nations (2005) and

Law et al (1988, p.121)

Page 18 of 18 Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK Submitted Manuscript

Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK Submitted Manuscript

< R1 -General Regional Economics < R -Urban, Rural, and Regional


MIMIC Model, Okun's law Shadow Economy

Keywords: O17 -Formal, Informal Sectors; Shadow Economy, etc

This paper aims to estimate the size of the U.S. shadow economy (SE) using a Structural

Equation Approach and to evaluate if a structural relationship exists between the SE and the unemployment rate (UR) in the United States. The size of the SE is estimated to be decreasing over the last two decades. We corroborate the existence of a structural relationship between the shadow economy and the unemployment rate by using a simple theoretical model. Furthermore, we extend the Okun's law to estimate the structural relationship between growth rate of official GDP, SE and UR. Our results indicate a significant positive relationship between the SE and the UR.

Introduction

The shadow economy (SE) is of great importance for the economy because it has relevant repercussions on the many aspects of economic and social life of a country. This paper aims to estimate the size of the U.S. shadow economy (SE) and to evaluate if a structural relationship exists between the SE and the unemployment rate (UR) in the United States.

First, we estimate the size of the shadow economy using the multiple indicator multiple cause model (MIMC). Secondly, a simple theoretical model is used to argue the existence of a structural relationship between the SE and UR. Finally, the structural relationship between the shadow economy and the unemployment rate is demonstrated empirically by re-examining the Okun's law.

Empirical evidence has shown that a consequence of high unemployment is the growth of the shadow economy [START_REF] Enste | The Informal Economy in the EU Assessment Countries: Size, Scope, Trends and Challenges of the Process of EU-enlargement[END_REF]. As a result it has been argued that the labour force participation rate is an indicator for the growth of the shadow because a growing SE is reflected by a reduction of the number of workers who work in the official economy.

A growing SE presents problems for the implementation of government policy. For example, there is the potential for huge fraud on the social welfare system as people who claim to be unemployed while working in the SE claim unemployment benefits. Another important feature is that workers and producers in the SE do not pay tax but free ride on public services. As a result this reduces the quantity and quality of the public provision of goods and services for workers and producers who pay tax. On the other hand, it is our opinion that the shadow economy benefits the economy because it absorbs the unemployed from the official economy. As a result, the SE reduces the effect of unemployment rate on the official economy. Hence, our motivation for this paper is to test if a structural relationship exists between the SE and the UR by using Okun's law. This is because the Okun's law provides empirical evidence of an inverse relationship between output growth and a decrease in unemployment. Our economic intuition is that the higher the rate at which workers lose jobs in the formal sector, the higher the unemployment rate. The higher the unemployment rate, the higher the shadow economy as workers choose to work in the SE rather than remain unemployed. Thus, we hypothesize that the presence of the SE reduces the effect of unemployment on the official economy.

This paper is organised into six sections. Section 2 provides an overview of related literature on the definition, causes and indicators of the SE. It also draws from the literature, the evidence supporting the connection between the SE and UR. Section 3 describes how the SE is estimated using the Multiple Indicators Multiple Causes Model (MIMIC). Section 3.A describes the data used in the estimation. The results of the estimated coefficients of the MIMIC model are then discussed in Section 3.B. This is followed by a description of how a time series of the U.S. shadow economy is obtained in sub-section 3.B.1. Section 4, presents a simple theoretical model to show the existence of a structural relationship between the SE and the UR. In Section 5, we reexamine the Okun's law by introducing the SE into the relationship between unemployment rate and growth rate of output. The results of our OLS regressions suggest the presence of a structural relationship between the growth of the SE and the UR in the U.S. Section 6 is the conclusion.

An overview on the Shadow Economy and its relationship to Unemployment

In this section, we provide an overview on the shadow economy. The SE is discussed in terms of its definition, classification of its activities as well as causes and indicators. We also discuss the connection between the SE and the UR.

2.A What Shadow Economy Measures?

The SE has been characterized with confusion with regard to it's meaning. Each definition draws out a different set of attributes that describe it. The shadow economy is also referred to as underground, informal, hidden, parallel, clandestine, second, irregular or household economy. The confusion appears to originate from the work of different fields (economics, sociology, statistics, law etc.) who define the SE based on the key "criteria" contributing to its development. Hence, there is no precise definition. [START_REF] Gërxhani | The informal sector in developed and less developed countries[END_REF] provides a variety of definitions for the SE based on political, economic and sociological classifications. In this paper we focus on the economic definition of the SE, it can be classified into two categories. These are "labour-oriented" and "sizeoriented" definitions.

The "labour-oriented" definitions focus on the impact of the SE on the labour market. The shadow economy is defined as the sum total of all income-earning activities excluding contract and legal employment. The labour force that emerges within this economy arises from tax and/or social security evasion.

The "size-oriented" definition considers the relationship between state regulation and the operation of a business. [START_REF] Swaminathan | Understanding the informal sector: A survey[END_REF] defines the SE as "establishments which are unregistered and unlicensed". It also considers the distortions that the SE causes to national accounts. [START_REF] Feige | The UK's Unobserved Economy: A Preliminary Assessment[END_REF] defines the SE as "all economic activities, which because of accounting conventions, non-reporting or under-reporting, escape social measurement apparatus, most notable the GNP accounts". This paper follows the size oriented classification and defines the SE as that part of the economy that operates outside the purview of government regulation. Illegal production (T7) includes the activities oriented at the production of goods and services whose sale, distribution or possession is prohibited by law. Included in this area are also productive activities carried out by unauthorised operators 1 . Due to the difficulty in estimation, that could limit international comparability, the illegal activities are often excluded by the national accounts.

In this research, we consider the SE as the part of NOE caused by economic reasons (T4, T5, T6). 1 The 1993 SNA states explicitly that illegal activities should be included in the SNA, noting that "despite the obvious practical difficulties in obtaining data on illegal production, it is included within the production boundary of the System" (1993, SNA 6.30), and that: "All illegal actions that fit the characteristics of transactions -notably the characteristic that there is mutual agreement between the parties -are treated the same way as legal actions" (1993, SNA 3.54). The 1993 SNA suggests that illegal actions for which there is no mutual agreement can be construed as an extreme form of externality for which, in general, no values are imputed in the national accounts. So it is absence of consent rather than illegality that is actually the criterion for exclusion from the production boundary. OECD (2002, p.38).

2.B Causes of the Shadow Economy

Empirical studies and theoretical models using data drawn from several countries conclude that in general the key factors that cause the growth of the SE are: taxes and social security contributions (SSC), composition of the labour force (e.g. unemployment and self-employment rate) and the quality of governance.

The burden of taxation is a major cause for the increase in the SE. The higher the tax rate, the greater the difference between the cost of labour in the formal economy and the after-tax earnings from work. As a result, higher taxes increase the supply of labour in the SE. This difference can be very large. For example in Germany and Austria, the difference between pre-tax earnings and post-tax earnings can be as much as a workers wages. As this difference depends on SSC and the overall burden of taxation, these are important factors that cause the increase in the SE. Johnson et al. (1998aJohnson et al. ( , 1998b) ) find that taxes have a significant impact on the SE. Other studies opine that the marginal tax rate increases the substitution effect of the labour-leisure choice in favour of a greater increase in the supply of labour in the SE. In the U.S, a 1 percentage point increase in the marginal federal personal income tax increases the shadow economy by 1.4 percentage points [START_REF] Cebula | An Empirical Analysis of the Impact of Government Tax and Auditing Policies on the Size of the Underground Economy: The Case of the United States, 1993-1994[END_REF].

We consider the structure of labour force as crucial factor that affects the SE. In particular, we take into account the UR and the number of self-employed as a percentage of the labour force. For the UR we refer to the paragraph 2.B.1. About the self-employment rate according to [START_REF] Bordignon | Tax Evasion in Italy[END_REF] such workers have greater possibilities for tax evasion. They usually have a greater number of deductible expenses, both from their taxable base and their tax bill in personal income tax. As they work very closely with their clients they can collude with them in the evasion of indirect taxes. Additionally, they find it easier than bigger firms to employ irregular workers since they have fewer internal and external auditing controls. Therefore, ceteris paribus, a high rate of self-employment means a large SE.

Quality of governance, bureaucracy, government regulations, such as rigid labour laws can lead to a huge increase in the cost of labour in the SE. These costs can be shifted to the employees providing an additional incentive to work in the SE. This observation has been supported by various empirical studies such as [START_REF] Johnson | The Unofficial Economy in Transition[END_REF]. A one-point rise (ranging from 1-5) in the regulation index causes an 8.1 percent increase in the shadow economy. [START_REF] Friedman | Dodging the grabbing hand: The determinants of unofficial activity in 69 countries[END_REF] in an exhaustive study find a significant positive correlation between every existing measure of regulation and the SE. They also show that for seventy-six countries, a one-point increase in the regulation index (ranging from 1-5) leads to a 10% increase in the proportion of the shadow economy relative to the formal economy.

A country characterised by strong governance has a smaller shadow economy. This relationship was presented in a simple model by Johnson et al. (1998a,b) in which countries with higher tax revenues were associated with fewer regulations and less corruption. As a result, they had smaller shadow economies. Consequently, there is a "good equilibrium" characterized by reduced taxes, low government regulations, low levels of corruption, large tax revenues and a strong rule of law. On the other-hand, there is the "bad equilibrium" characterised by high taxes, rigid government regulations, high incidence of corruption, declining tax revenues and a weak enforcement of the law.

2.B.1 Overview of the relationship between the Shadow Economy and Unemployment

From the foregoing, people work in the SE because of the increased cost that firms in the formal sector have to pay to hire a worker. The increased cost comes from the tax burden and government regulations on economic activities. [START_REF] Schneider | Shadow economies: size, causes and consequences[END_REF] explain that the individual decision to work in the SE is the reaction to being overburdened by tax and state regulations and so they choose the "exit option" rather than the "voice option"2 .

For instance it is well known that in the OECD countries, unemployment is caused largely by high labour costs. In discussing the growth of the shadow economy, the empirical evidence suggests two important factors: (a) reduction in official working hours, (b) the influence of the unemployment rate.

In an effort to reduce the unemployment rate, France and Germany reduced the quantity of working hours because of the limited amount of work "and that this quantity has to be redistributed". But [START_REF] Enste | The Informal Economy in the EU Assessment Countries: Size, Scope, Trends and Challenges of the Process of EU-enlargement[END_REF] points out that this idea "neglects" the fact that reducing the number of hours of work below worker's preferences raises the quantity of hours worked in the SE. This increases the growth of the shadow economy. Early retirement also increases the quantity of hours worked in the SE.

De Gijbel (1984) and [START_REF] Riebel | Die Schwarzarbeit als Problem der Zeitallokation[END_REF][START_REF] Riebel | Arbeitszeitverkurzung und Schwarzarbeit Auswirkungen einer Verkurzung der Wochenarbeitzeit auf das Individuelle Arbeitsangebot[END_REF] explain that part-time work offers an excellent opportunity to work in an untaxed and unregulated economy. [START_REF] Lemieux | The Effect of Taxes on Labor Supply in the Underground Economy[END_REF] using micro data from a survey conducted in Quebec city (Canada) provide extensive research on the supply of labour in the underground economy. Their key results show that "participation rates and hours worked in the underground sector also tend to be inversely related to the number of hours worked in the regular sector". Empirically, there is a huge negative elasticity of substitution between the hours worked in the SE and the wage rate in the regular sector. They also show that there is a high mobility between the sectors.

In Schneider and Enste (2000, p.108) are reported the size of the labour force in the official and shadow economies in some OECD countries. In France the size of the shadow labour force increased from between 3%-6% in 1975-1982 to between 6%-12% in 1997-1998. This was followed by an increase in the size of the SE from 6.9% to 14.9% within the same period. In Germany, between 1974-1982 the shadow labour force was around 8% -12%. However this increased to around 19%-23% between 1997-1998. The increase may provide a reason for persistent unemployment in Germany as the SE also increased from 10.6% to 14.7%. In Spain the size of the shadow labour force increased from between 9. 6%-26.5% in 1979-1980 to between 11.5%-32.3% in 1997-1998. This was followed by an increase in the size of the SE from 19% to 23.1% within the same years 3 . Also in Italy, there is an increase in the size of the shadow labour force from between 20%-35% to 30%-48% as the SE also rises from 16.7% to 27.3% within the same time period 4 .

In Italy, [START_REF] Bertola | The Structure and History of Italian Unemployment[END_REF] present the case that an increase in payroll taxation can have effect on the supply of labour and the size of the shadow economy. An increase in tax and 3 A detailed analysis of the Spanish shadow economy is presented in [START_REF] Ahn | The underground economy in Spain: an alternative to unemployment[END_REF], [START_REF] Alañón | Estimating the size of the shadow economy in Spain: a structural model with latent variables[END_REF]. 4 For an analysis of Italian shadow economy and its causes, see Dell'Anno and [START_REF] Dell'anno | The Shadow Economy of Italy and other OECD Countries: What do we know?[END_REF]. social security burdens not only reduces official employment but tends to increase the shadow labour force. This is because an increase in payroll tax can influence the decision to participate in official employment [START_REF] Garibaldi | Labor Market Flows and Equilibrium Search Unemployment[END_REF]. Also, [START_REF] Boeri | Shadow Activity and Unemployment in a Depressed Labor Market[END_REF] show between 1995-1999 a strong positive correlation between average unemployment rate and average shadow employment across 20 Italian regions.

On the contrary, Giles and Tedds (2002) argue that the effect of unemployment on the SE is ambiguous (i.e. both positive and negative). An increase in the number of unemployed increases the number of people who work in the black economy because they have more time. On the other hand, an increase in unemployment implies a decrease in the SE. This is because the unemployment is negatively related to the growth of the official economy (Okun's law) and the shadow economy tends to rise with the growth of the official economy. This ambiguous relationship is also mentioned by [START_REF] Tanzi | Uses and Abuses of Estimates of the Underground Economy[END_REF] as the class of labourers that compose the "shadow labour force" are extremely heterogonous. These include the officially "unemployed" to retired people, housewives and minors as well as those workers who work both in the official and shadow labour force.

2.C Indicators of the Shadow Economy

A growing SE has an impact on the formal sector through its effect on the product, money and labour markets. These factors are able to capture the changes in the size of the SE relative to the formal economy. We include in MIMIC model monetary indicators (Y 1 ) (we use the ratio of narrow money to broad money), production in the formal economy (Y 2 ) (measured by the Real Gross Domestic Product) and the labour force participation rates (Y 3 ).

In terms of monetary indicators, most transactions in the SE occur cash. Therefore an increase in the SE, increases the demand for cash. In this paper, this is measured using the ratio of narrow money to broad money.

In terms of the labour force, an increase in the relative size of the SE is usually reflected by a reduction in official labour force participation rates. As more people work in the SE, the number of people who work in the formal economy declines. Also there is also a reduction in the number of hours spent working in the formal economy.

In the product market, a growing shadow economy encourages the flow of inputs out of the formal sector which can depress productivity in the formal sector as measured by the official growth rate.

An increase in production in the SE can be reflected by a decrease in the official growth rate in the formal economy. This is because during a recession, inputs such as labour and capital are moved out from the formal economy into the SE. Thus, there is an inverse relationship between the shadow economy and the formal economy. On the other hand, some argue that formal economy drives growth in the SE. This occurs in economies where there are significant linkages between the formal economy and shadow economy. In Nigeria, [START_REF] Arimah | Nature and Determinants of thr Linkages between Informal and Formal Sector Enterprises in Nigeria[END_REF] describes the presence of forward linkages in which certain aspects of production in the formal economy are subcontracted to the SE. Thus an increase in official growth rate increases the relative size of the SE as a result of increased demand for goods and services by firms in the formal economy. Thus, a recession could lead to a reduction in the growth of the SE owing to a reduction in the growth of the official economy. As a result, there is a direct relationship between the size of the SE and the growth of the official economy.

About the relationship between SE and official GDP, [START_REF] Schneider | Shadow economies around the world: what do we know? Working Paper[END_REF] find evidence for different signs of correlations between them, according with the degree of economic development. They find a pro-cyclical relationship between activity in the legitimate and underground economy for developed countries but countercyclical for developing economies.

Although several comparative and single country studies have unearthed significant information, they have not been able to provide unambiguous results on the relationship between official to unofficial economy5 .

Modelling the Shadow Economy

In this section, we show how the SE is modelled. We model the U.S. shadow economy using the MIMIC model developed by [START_REF] Jöreskog | Estimation of a model with multiple indicators and multiple causes of a single latent variable[END_REF]. Using the standard LISREL notation of [START_REF] Jöreskog | LISREL 8, User's Reference Guide[END_REF], equation 1 is a measurement equation where t (unobserved or latent) variable determines ( )

1 2
, , , d y y y y = K column vector of indicators subject to a random error term t . t is an unobserved or latent and is a scalar. P is a ( )

1 d × column vector of parameters that relates t y to t . t t t y = + . ( 1
)
Equation 2 is a structural equation which shows that the unobserved variable t is determined by t

x set of exogenous causes ( )

1 2 , , , c x x x K
and t a structural disturbance error term. is a ( )

1 c
× vector of structural parameters:

t t t x = + . (2)
Without loss of generality, all variables are taken to have zero expectations. From equations ( 1)

and ( 2) it is assumed that:

(a) the elements of t and t are n.i.i.d and uncorrelated;

(b) the variance of the structural disturbance term t is ;

(c) the covariance matrix of the measurement errors is a diagonal covariance matrix .

Substituting equation 1 and 2 yields a reduced form solution which expresses a relationship between the observed variables t

x and t y . This is shown in equation 3: x . An observation of the reduced form parameters shows that unique solutions to the structural parameters and cannot be obtained from the reduced form model. This is because altering the scale of yields an infinite number of solutions to and from the same reduced form solution. This inability to obtain unique solutions to and causes an identification problem which can be resolved by fixing the scale of the unobserved variable. This is the sufficient condition for identification which can be achieved by setting one of the coefficients in the column matrix to a constant. An alternative is to fix the variance of the unobserved variable to 1 but the former is more convenient for economic interpretation.

t t t y x z = + , (3) where

3.A Data Issues

In this section we discuss the data used for the estimation. The variables used in the estimation are defined in Appendix 1. The data series are quarterly from 1970 to 2004.

The series in levels or differences have been tested for unit roots using the appropriate frequencies. This is shown in Appendix 2. We use the Augmented-Dicky Fuller (ADF) 1) and if we reject I(2), we test I(1) against I(0) as appropriate. All the series have been seasonally adjusted. For particular series that exhibit trends, we include time trend along with a constant in testing for the presence of unit roots using the above tests.

3.B Estimating the U.S. Shadow Economy using the MIMIC Model

In this section we describe how the model is estimated using the MIMIC model. We estimate several specifications of the model. We test for identification and then proceed to discuss the sign and significance of the estimated coefficients as well as the Goodness of Fit of our model.

In estimating the size of the SE, the unobserved variable is modelled as a restricted linear function of a set of exogenous factors subject to a random disturbance term t shown in equation 5:

1 1 2 2 t t t c c t t x x x = + + + L . ( 5
)
The variables used for estimation are shown in the path diagram in figure 2. The structural model MIMIC 4-1-2 has 21 structural parameters and the reduced form model has 15 reduced form parameters. Thus, the model is over-identified by the number of additional reduced-form parameters (6). The chi-square statistics tests the null that the covariance matrix is restricted by the number of additional parameters.

In examining Table 1 we observe the sign, and significance of the variables. In terms of the indicators, the ( )

1 2 M M is negatively significant showing that the higher the size of the SE, the lower the demand for broad money relative to narrow money. Table 1 shows an insignificant relationship between the labour force participation rate and the size of the shadow economy. The causal variables, with exclusion of "Ratio of Taxes on production to GDP", have the anticipated sign being positively correlated with the size of the shadow economy.

3.B.1 Obtaining the size of the Shadow Economy

In this section, we discuss how we obtain a series for the unobserved variable. According with the reference variable ( 2Y , Real GDP t /Real GDP 1990 ) the unobserved variable is scaled up to a value in 1990, which is our base year. The year selected is 1990 because this is the year in which there are several estimates of the U.S. shadow economy. This assists us to building an average of the estimates. This is shown in table 2. Finally, the index is scaled to take up to a value of 10.6 percent in 1990 and further transformed from changes respect to the GDP in the 1990 to the shadow economy as ratio of current GDP. ( )

ˆ/ t t
GDP is the estimated SE as a percentage of official GDP.

The ratio between II and III is the coefficient of standardization: it satisfies the condition that estimated SE divided to the GDP in 1990 should be equal to 10.6%. Finally, the third addend of LHS converts the index of changes respect to base year into a ratio between SE and current GDP.

In figure 3, the estimated SE as percentage of official GDP calculated by eq. ( 7) is shown in comparison with other estimates of the SE for U.S. calculated by different methods and extracted by [START_REF] Schneider | Shadow economies around the world: what do we really know?[END_REF] and [START_REF] Schneider | Shadow economies: size, causes and consequences[END_REF].

Is there a structural link between the Shadow Economy and Unemployment?

In this section we adapt a model by [START_REF] Hall | A Theory of the Natural Rate of Unemployment and the Duration of Unemployment[END_REF] to show that a structural relationship exists between the shadow economy and unemployment rate by examining the dynamics in the flow of workers.

7 As the variables are all differenced to same degree, to calculate the levels of the latent variable multiplying the structural coefficients for raw (unfiltered) data, it is equivalent to compute the changes in the index by multiplying coefficients for the differenced causes and then to integrate them.

L = U + E (8)
Let U/L be the unemployment rate. To analyse the determinants of the unemployment rate, we consider the flow of workers in and out of unemployment and employment. Let s be the job separation rate and f be the job finding rate. The job separation rate is the rate at which a worker loses a job and becomes unemployed. The job finding rate is the rate at which a worker finds a job and becomes employed. In the steady-state the unemployment rate is constant. This occurs when the rate at which a worker loses a job and becomes unemployed equals the rate at which a worker finds a job and becomes employed. Therefore in the steady-state the job separation rate equals the job finding rate.

fU sE =

The unemployment rate can be solved by substituting E for (L-U) and dividing both sides of equation ( 9) by the total labour force (L). This is shown in (10):

1 fU U s L L = (10)
Solving equation ( 10) yields the unemployment rate as a function of the job finding rate and the job separation rate.

U s L f s = + (11)
From equation ( 11), it can be seen that an increase in the job separation rate (s) increases the UR and an increase in the job finding rate (f) decreases the unemployment rate. Now from equation ( 9), we can relate the SE to the UR. Assume in this economy, goods in the official economy are produced using only labour. Labour is the stock of workers who are in employment. If technology is assumed to be constant then output in the official economy is produced entirely from the stock of employed workers i.e.

Y=E (13)

Recall equation ( 10) which states the unemployment rate is the difference between the total labour force and the stock of employed workers. Substituting output in the official economy (Y 1 )

for E yields the unemployment rate as a negative function of output per worker in the official economy. This is shown in equation ( 14).

( )

1 1 Y U L E L L L = = (14)
Let total output be the sum of output in the official economy (Y 1 ) and output in the SE (Y 2 ). This is represented in equation ( 15) where Y T is total output, Y 1 is output produced in the official economy and Y 2 is output produced in the shadow economy.

1 2 T Y Y Y = + (15)
Equation ( 16) shows output in the official economy is the difference between total output and output in the SE (Y T -Y 2 ). An increase in output in the SE reduces output in the official economy.

1 2 T Y Y Y = (16)
Substituting this difference in to equation (15) yields the UR as a function of the difference between total output per worker and the output in the SE per worker respectively. Output per worker in the shadow economy can also be re-interpreted the share of the SE as proportion of the labour force. Equation ( 17) shows the UR depends positively on the SE as a proportion of the labour force. It also shows that the larger difference between total output and output in the SE per worker respectively (which is output in the official economy per worker ) the lower the UR.

2 1 T U Y Y L L + = . ( 17
)
Rearranging ( 16) to solve for the SE and substituting for the UR in equation ( 11) produces the determinants of the SE as a proportion of the labour force as shown in equation ( 18) reduces the share of the SE because it reduces the UR. Equation ( 18) also shows that an increase in total output per worker increases the relative share of the SE to the labour force. Furthermore, an increase in the labour force reduces the share of the SE. A higher stock of workers in the labour force reduces the stock of workers who participate in the SE.

2 1 T Y s Y L f s L = + + . ( 18
Our theoretical result concurs with [START_REF] Ahn | The underground economy in Spain: an alternative to unemployment[END_REF] who explain that the SE is considered to be an alternative source of employment for workers who face "restrictions in the formal sector". Working in the SE denies them access to social security contributions. If workers do not find jobs in the formal sector, they would rather work in the SE than become unemployed.

Ahn and De La Rica (1997) also suggest that the working in the SE might be a transitory situation for workers who are waiting to find jobs in the SE. This is because their data set based on living and working conditions in Spain showed that informal sector jobs are inferior to formal sector jobs. Their study showed that there are higher returns to human capital in the formal sector than in the informal sector.

Based on our theoretical argument developed earlier, we examine if a significant positive relationship exists between the shadow economy and the unemployment rate. Early indications of a positive relationships can be observed in Figure 4 which compares the trend of the SE estimated by MIMIC 6-1-2a and the UR for the U.S.

We use MIMIC 6-1-2a instead of MIMIC 5-1-2a because, in the latter specification (see table 1), the unemployment rate figures in the structural equation (eq. 6). In MIMIC 6-1-2a , the UR is not one of regressors used to calculate the SE. Figure 4 shows a direct relationship between the SE as a percentage of GDP and the UR. To corroborate the presence of a strong positive relationship between the SE and UR in the U.S., we estimated the correlation between SE and UR. It is found to be 0.63. For our empirical analysis we re-examine the Okun's law which shows an inverse relationship between the growth of the official economy and the unemployment rate. We choose the Okun's law because it is a well established relationship in macroeconomics.

A re-examination of Okun's law -The relationship between unemployment and growth of official economy in presence of Shadow Economy

In this section, we test the relationship between the unemployment rate, the official economy and the shadow economy by re-examining the Okun's law. As is well known, the Okun's law (developed by [START_REF] Okun | Potential GNP: Its Measurement and Significance[END_REF], relates decreases in the UR to increases in output growth. Over time and across countries, the exact quantitative form of this relationship has changed somewhat.

However, the negative correlation between changes in the UR and changes in GDP growth is viewed as one of the most consistent empirical relationships in macroeconomics8 .

In light of the relationship between the SE and the UR developed in section 4, we examine if the SE has a significant effect on the UR. Also of interest is the direction of this relationship. The economic intuition is derived from the hypothesis that a lower growth rate of official GDP from potential output is associated with higher deviations of the unemployment rate from its "natural" level. As previously shown in Section 4, a higher job separation rate increases the UR and this leads to an increase in the number of labourers who work in the unofficial labour market. This causes an increase in the growth of the relative share of the SE. Thus, we argue that an increase in the job separation rate increases the UR and this produces two opposite effects: direct effect (observed) -it reduces the growth of official GDP; The increase in the relative share of the SE causes a decrease in growth official GDP but by less than the direct impact of unemployment rate.

Consequently, our empirical results suggest that the presence of the SE stabilizes the effect of higher unemployment on the growth rate of official output through its ability to absorb the unemployed into the unofficial labour force as workers in the SE. This is confirmed by the significant statistical relationships among the growth rate of official GDP, changes in UR and the growth of the SE in the U.S. economy. The statistical correlations between 1970 to 2004 are shown in figure 5. Table 3 shows the estimates obtained based on the standard relation given by Okun's law:

0 Y t t t g u = + . ( 19
)
Where:

( ) economy estimated by MIMIC 6-1-2a. We utilize this alternative model specification to estimate the size SE instead of MIMIC 5-1-2a. In this sense, we attempt to control for collinearity between regressors of eq. ( 20):

(
1 Y t t t t g u g = + + . ( 20
)
Table 4 shows the output of modified Okun's equation. The estimated output shows a lower effect of differences in UR on the growth of official GDP ( )

1 0

<

. In authors' view estimated coefficients should be considered cautiously. The OLS regression coefficients are biased when one omits a relevant variable, and the direction and size of the bias depends on the correlation between the omitted and included RHS variables. In this case, the correlation between changes in UR and the structural growth of SE affects the estimate of statistical relationship between t u and Y t g . In this sense, the difference between -coefficients can be biased for omitted variables. In this case, the correlation between changes in UR and the structural growth of SE could cause an overestimation of the compensatory effect that SE has on GDP as a consequence of the changes in UR.

The econometric results confirm an over-evaluation in Okun's law of the effects that changes in unemployment have on the growth rate of official GDP. According with the conclusions of the theoretical model presented in paragraph 4, we deduce therefore that SE tends to cushion the effects of changes in unemployment on the official GDP.

The significant difference in -coefficients ( 1 is about one-fourth of ) 0 is evidence for a direct relationship between changes in UR and the growth of the SE.

Our estimations show that the presence of the SE acts as a buffer as it absorbs some of the unemployed workers from the official economy into the SE. It reduces the impact of higher unemployment on official output. Therefore the SE is an asset rather than a liability to the official economy. Since the SE is able to aid in cushioning the adverse effects of government policy, ways of incorporating the SE into the wider economic network should be explored. [START_REF] Bajada | Unemployment and the Underground Economy in Australia[END_REF] shows a positive relationship between the rate of unemployment and the shadow economy in Australia. He introduces the concept of an "income effect" and "substitution effect" in explaining the effect of UR and the SE. A decrease in consumption leads to a decrease in output in the official and SE respectively. This is the "income effect". The decrease in economic activity in the official economy increases the UR. As a result, workers who cannot find a job in the official economy switch the supply of labour to the SE. This is the "substitution effect". He argues that the advantage of the substitution effect is that it acts as an automatic stabilizer in decreasing the volatility of the business cycle of the SE. Consequently, a higher UR reduces the volatility of the aggregate business cycle. However, his results showed that the effect of the automatic stabilizer is limited because the income effect dominates the substitution effect.

In. U.S. economy we don't find evidence for the "income effect". It is because official and unofficial economies are inversely correlated. That being stated, SE is able to reduce the volatility of the aggregate business cycle.

According with [START_REF] Bajada | Unemployment and the Underground Economy in Australia[END_REF] the issue of how changes in the UR affect the SE is crucial not only from a business cycle perspective but also from the perspective of public funding of welfare assistance programmes.

In U.S. economy, the positive relationship between UR and SE implies the following policy propositions: (a) changes in the UR can potentially act as an automatic stabilizer dampening the volatility of the business cycle, and (b) government requires more stringent monitoring of those receiving welfare assistance to avoid that unemployment benefit became incentive to participate in the shadow labour force.

Conclusion

In this paper, we estimate the size of the shadow economy in the United States as well as examine if a structural relationship exists between the UR and the SE. The SE was estimated using the MIMIC model. Our results show that the size of the SE varies from fourteen to nineteen The MIMIC analysis points out the major factors that determine the size and development of SE. The social security contributions as ratio of official GDP, the unemployment rate and the rate of self-employment as a percentage of the labour force are the main determinants of SE in USA.

They have the expected positive sign and are statistically significant.

We find also some "unusual" results. In particular, the tax burden has either an insignificant influence or in the case of corporate taxation a statistically significant negative influence.

Authors' explanation for this puzzling result is twofold. From a theoretical viewpoint, the difference between US outcome and other developed countries can be linked to the evidence that there are only a few OECD member countries with a lower tax burden than the United States [START_REF] Herd | Increasing efficiency and reducing complexity in the tax system in the United States[END_REF]. The total amount of tax revenue raised in the United States has increased only modestly over the past 35 years relative to GDP. In this sense, we conclude that a fair level of taxation and moderately increasing trend could motivate the exclusion of tax burden among the causes of the development of the U.S. Shadow Economy.

From a methodological perspective, the reappraisal of the tax burden as causes of SE respect to alternative estimate provided by similar studies (i.e. [START_REF] Schneider | Shadow economies around the world: what do we really know?[END_REF] can be motivated also by the different approaches followed in these researches. While we develop a single country analysis, the above mentioned paper is based on panel data. It means to give different interest on the crosscountry dimension or the cluster composition (OECD countries, Developing countries, etc.) instead of the time dimension. In this sense, we believe that a single country analysis is able to take better into account the long-run relationship among causes and SE.

Several specifications of the MIMIC model were used and a significant positive relationship was found between UR and the SE. This result was an early indicator of beneficial role the SE plays in reducing the impact of unemployment on the official economy. A downturn in the economic official activities leads to a loss of jobs and thus drives part of unemployed into the shadow activities. We adapt a model by [START_REF] Hall | A Theory of the Natural Rate of Unemployment and the Duration of Unemployment[END_REF] to examine the relationship between the SE and the UR.

The economic intuition is that the higher the rate at which people lose job in the formal sector, the higher the unemployment rate. Consequently, the relative share of the SE to the labour force increases. [START_REF] Bajada | Unemployment and the Underground Economy in Australia[END_REF] in his study shows a positive relationship between the UR and the SE in Australia. His results showed that the effect of the automatic stabilizer is limited because the income effect dominates the substitution effect. In. U.S. economy we don't find evidence for the "income effect" then SE reduces the volatility of the aggregate business cycle. According to [START_REF] Bajada | Unemployment and the Underground Economy in Australia[END_REF] policymakers who make use of official statistics to gauge their policies may be unconscious of the true volatility in the business cycle generated by the SE.

We suppose that the relationship between the SE and UR reduces the magnitude of the effect of changes in the unemployment rate on output growth (known as Okun's law). Okun's rule of thumb tells us that GDP rises when the unemployment rate decrease (eq. 19). We suggest that the Okun's coefficient is biased (overstated) as a consequence of the omission of the shadow economy (eq. 20).

This becomes the motivation to modify the Okun's law to include the SE. Our results show a direct relationship between the unemployment rate and the growth of the shadow economy while maintaining the a-priori relationship between the official growth rate and the rate of unemployment rate. An increase in unemployment reduces official growth rate by 1.54%.

However, including the SE shows that an increase in unemployment leads to a smaller reduction in the official growth rate of 0.04%.

Our findings is that the SE plays a beneficial role in cushioning the effect of unemployment on the official economy because it absorbs the "excess labour force" following demand restrictions in the official economy into the SE. Therefore the presence of the SE is an asset rather than a liability to the growth of the official economy. The SE creates an extra added value that can be spent in the official economy10 thus having a positive effect on the latter. Furthermore, people involved in informal production activities are usually characterized by lower level of personal income, therefore, underground production modifies (improves) the distribution of income in society. The SE is characterized by very low costs of labour. In addition, there is higher freedom of entry and exit in the shadow economy. This contributes to improving competitiveness in the labour market by making the labour market more flexible to changes in the demand and supply of labour.

Therefore, in contrast to the view that the SE is a main concern for policymakers, according to our findings, government should be addressing their policies to move economic activities in the SE towards official economy rather than eliminate them. Incorporating the SE would decrease significantly the distortions in economic indicators such as the UR and growth rate which the government rely on to formulate policy.

Given that the estimation of the SE, whose nature is unobservable, is very complicated, any theoretical and empirical inference derived by these figures should be considered always as an approximation. In light of these difficulties, we believe that the results drawn from these estimations should be interpreted cautiously with a full understanding of their limitations.

However, the results provide an interesting analysis as to the short-run and long-run implication of the shadow economy on the rate of unemployment and vice versa 11 .

APPENDIX 2: ANALYSIS OF NON-STATIONARITY

In this appendix we display the tests employed to detect the order of integration in the time series. The pioneer in tackling the problem of non-stationarity in the MIMIC models has been [START_REF] Giles | Measuring the size of the hidden economy and the tax gap in New Zealand: an econometric analysis[END_REF]. As Giles and Tedds (2002) The econometric software Eviews 4.1 was used in to perform this analysis. 3 Adjusted goodness-of-fit index, AGFI is a variant of GFI which uses mean squares instead of total sums of squares in the numerator and denominator of 1 -GFI. It varies approximately from 0 to 1. AGFI should also be at least 0.90. 4 The degrees of freedom are determined by 0.5(d+c)(d+c+1)-t, where "d" is the number of indicators, "c" the number of causes and "t" is the number of free parameters. Taxes on production and imports /GDP T&C 0.773 0.676 0.252 0.000 0.000 0.072* 0.000 0.000 0.008* X 5

Models

Taxes on corporate income/GDP T&C 0.266 0.266 0.132* 0.000 0.000 0.041* 0.000 0.000 0.016* X 6

Contributions for government social insurance/GDP T&C 0.682 0.884 0.356 0.001 0.000 0.042* 0.000 0.000 0.047* X 7

Governm. Unemploy. insurance C 0.008 0.052 0.533 0.000 0.000 0.054* 0.000 0.000 0.146* X 8 Unemployment rate C 0.092 0.113 0.424* 0.000 0.000 0.099* 0.000 0.000 0.155* X 9

Self-Employment/Civilian Labour For. C 0.327 0.448 0.491 0.000 0.000 0.174* 0.000 0.000 0.195* X 10 Index of bureaucracy T&C 0.620 0.446 0.079* 0.000 0.000 0.073* 0.000 0.000 0.026* Indicators Y 1 M1/M2 T&C 0.527 0.571 0.161 0.222 0.000 0.117* 0.001 0.000 0.043* Y 2 Index of real GDP T&C 0.931 0.958 0.328 0.000 0.000 0.034* 0.000 0.000 0.067* Y 3 Civilian Labour Force participation rate T&C 0.999 0.998 0.338 0.000 0.000 0.112* 0.000 0.000 0. Q1 1970 Q1 1972 Q1 1974 Q1 1976 Q1 1978 Q1 1980 Q1 1982 Q1 1984 Q1 1986 Q1 1988 Q1 1990 Q1 1992 Q1 1994 Q1 1996 Q1 1998 Q1 2000 Q1 2002 Q1 2004 % of GDP Q1 1970 Q1 1972 Q1 1974 Q1 1976 Q1 1978 Q1 1980 Q1 1982 Q1 1984 Q1 1986 Q1 1988 Q1 1990 Q1 1992 Q1 1994 Q1 1996 Q1 1998 Q1 2000 Q1 2002 Q1 2004 Shadow Ec. as % of GDP

  It is because of this myriad of definitions that the System of National Accounts (SNA) introduced an aggregate called the "Non-Observed Economy" or NOE. As a result, the Italian National Statistical Institute (ISTAT) classified the NOE as shown in the flowchart in figure1.The NOE comprises all product activities that can be classified into the following three areas OECD (2002): Underground production (T1, T2, T3, T4, T5); Informal production (T6); Illegal production (T7).

Figure 1 :

 1 Figure 1: ISTAT Framework of Non-Observed Economy

=

  : = : is a c d × reduced form coefficients matrix and has rank one expressed in terms of c and d elements of and ; t t t z = + : is a reduced form disturbance vector; the reduced-form covariance matrix of the measurement errors. The reduced form equation matrix has two restrictions. These are that the c d × coefficient matrix has rank one and that is the sum of a rank one matrix and a diagonal d d × matrix. The necessary condition for identification is that the number of structural parameters should be equal to the number of reduced form parameters. From equations 1 and 2, our structural model has c elements in , an element in the variance of t , ( ) elements in the variance of t x and d elements contained in and in the variance of t . From equation 3 and 4, the reduced form model contains cd elements in , ( )

Figure 2 :.

 2 Figure 2: Path diagram of MIMIC Model

Figure 3 :

 3 Figure 3: Shadow Economy as percentage of official GDP

  Consider a closed economy with a total labour force of L workers. Assume the total labour force is constant. The labour force consists of the stock of workers who are unemployed (U) and the stock of workers who are in employment (E):

Equation ( 12 )

 12 shows output in the official economy (Y 1 ) as a function of technology (A) and the stock of workers who are in employment (E):

  produces the key result showing the structural relationship between the relative share of the SE as a proportion of the labour force and the unemployment. An increase in the stock of workers who lose jobs (job separation rate) in the formal sector increases the UR and this causes a rise in the SE as a proportion of the labour force. Workers who lose jobs in the official economy shift their labour services to the SE thus expanding output per worker in the shadow economy. Hence the relative share of the shadow economy with respect to the labour force increases. On the other-hand, an increase in the stock of workers who find jobs (job finding rate)

Figure 4 :

 4 Figure 4: Shadow Economy Vs Unemployment rate

  partially unobserved) 9 -it increases the growth of the SE via the increase in the relative share of SE to the labour force.

Figure 5 :

 5 Figure 5: Growth of Official GDP, Changes of Unemployment and Growth of Shadow Economy

  and 1983 and then decreases steadily up to 7 percent of official GDP in 2004.

  quarterly and seasonally adjusted. The sources are: Bureau of Economic Analysis (BEA) and Bureau of Labor Statistics Data (BLS).

  Figure 1: ISTAT Framework of Non-Observed Economy

Figure 5 :

 5 Figure 5: Growth of Official GDP, Changes of Unemployment and Growth of Shadow Economy

  Figure 6: Plots of Variables

Table 1 :

 1 Estimated Coefficients of the MIMIC Models and descriptive statistics

6

The index of real GDP is equal to (Real GDP t )/(Real GDP 1990 ).

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Table 2 :

 2 Estimates of the size of U.S. shadow economy(1990) The index of changes of the SE in the United States as a percentage of GDP in the 1990 is linked to the index of changes of real GDP as follow:

	Measurement equation:	1990 GDP GDP t t GDP	1	=		1 1990 t GDP t % % ,											(5)
	The estimates of the structural model, extracted by MIMIC 5-1-2a, are used to obtain an ordinal
	time series index for latent variable:
	Structural Equation:	1990 GDP % t	=	0.07	X	2	t	+	1.00	X	6	t	+	0.96	X	7	t	+	1.19	X	8	t	+	1.02	X	9	t	. (6)

  These operations are show in the following benchmark equation 7 :

					1990 GDP %	* 1990 1990 %	1990 t GDP GDP	=	t t t GDP	(7)
	where:
	I.	(	1990 t GDP / %	)	is the index of SE calculated by eq. 6;
	II.	(	* 1990	/	1990 GDP =	10.6%	)	is the exogenous estimate of SE;
	III.	(	1990 %	1990 / GDP	)	is the value of index estimated by eq. 6 in 1990;
	IV.	(		1990 /				)

t GDP

GDP is to convert the index of changes respect to base year in SE respect to current GDP;

V.

Table 3 :

 3 Estimation output of regression:

	g	Y t	=	0	t u	+	t

Table 4 :

 4 Estimation output of regression:

	g	Y t	=	1	t u	+	g	t	+	t

Table 5 :

 5 Dataset

  point out, the most appropriate way "…to consider the non-stationary element is to consider the possibility of cointegration. Unfortunately, there is no established literature which may serve as a guide to this procedure in the context of the MIMIC model". To discover the unit roots, the Augmented Dickey-Fuller (ADF) Test and the Philliphs-Perron (PP) Test are used; to choose a number of lags sufficient to remove serial correlation in the residuals and the automatic selection of bandwidth we have employed the Schwarz information criterion (ADF) and the Newey-West test using Bartlett Kernel (PP). In the following tables the pvalue of the abovementioned tests is reported, while the null hypothesis is the presence of the unit root, and therefore a value greater than 0.05 indicates non-stationary time series. A third unit root test is applied, namely theKwiatkowski, Phillips, Schmidt and Shin Test (KPSS, 1992) 12 . This test differs from the others in that the series is assumed to be (trend-) stationary, according to the null

	-KPSS test equation with constant and trend: 0.119 (10%), 0.146 (5%), 0.216 (1%).
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	hypothesis. The table 7 shows the statistical test: we test I(2) against I(1) and if we reject I(2), we
	test I(1) against I(0) as appropriate, if the estimated values exceed the respective critical values 13 ,
	stationarity must be rejected. The critical values for the LM test statistics are based upon the
	asymptotic results presented in KPSS (table 1, p. 166).
	-KPSS test equation with constant critical values are: 0.347 (10%), 0.463 (5%), 0.739 (1%);

Table 6 :

 6 Unit root analysis

	Figure 6: Plots of Variables

Table 2 :

 2 Estimates of the size of U.S. shadow economy(1990)

	MIMIC 8-1-2	Tax,SSC burden --	Tax Burden --	Tax person. 0.12 (1.28)	Tax produc. 0.84 (1.42)	Tax corpor. -0.71 * (-2.28)	Social S. Contr. 0.80 * (2.13)	Subs. Unempl 1.20 (1.32)	Unempl. Rate 0.93 * (4.78)	Self Empl. 1.14 * (2.34)	Index Bureac. -0.33 (-0.35)	M1/M2 --	Lab.For. Partic. -0.02 (-0.47)	2 (p-value) 1 25.59 (0.029)	RMSEA (p-value) 2 AGFI 3 Df 4 0.077 + (0.16) 0.86 14
	MIMIC 7-1-3 MIMIC 6-1-2 MIMIC 4-1-2	------	------	0.10 (1.23) 0.12 (1,15) --	------	-0.60 * (-2.28) -0.75 * (-2,46) -0.72 * (-2.33)	2.08 * (6.08) 0.81 * (2,18) 0.80 * (2.13)	1.43 (1.89) 1.29 (1.44) --	0.67 * (4.00) 0.95 * (4.92) 1.11 * (7.40)	0.68 (1.66) 1.19 * (2.44) 1.20 * (2.44)	-0.58 (-0.76) ----	-0.49 * (-3.50) ----	0.05 (1.60) -0.03 (-0.75) -0.03 (-0.88)	69.69 (0.000) 11.71 + (0.470) 9.16 + (0.165)	0.114 (0.00) 0.000 + (0.74) 0.062 + (0.34)	0.54 24 0.94 + 12 0.92 + 6
	MIMIC6-1-2a	--	--	0.12 (1.14)	1.03 (1.63)	-1.44 * (-4.97)	0.48 (1.21)	3.84 * (5.06)	--	1.04 * (2.00)	--	--	-0.04 (-0.47)	11.50 (0.402)	0.018 + (0.67)	0.93 + 11
	MIMIC 5-1-3 MIMIC 5-1-2 MIMIC 4-1-2a	0.10 (0.99) 0.10 (0.99) 0.10 (1.00)	------	------	------	------	------	1.07 (1.15) 1.08 (1.15) 1.05 (1.13)	1.17 * (6.56) 1.17 * (6.55) 1.17 * (6.57)	1.12 * (2.19) 1.12 * (2.19) 1.12 * (2.22)	-0.26 (-0.27) -0.26 (-0.28) --	-0.01 (0.09) ----	-0.02 (-0.50) -0.02 (-0.50) -0.02 (-0.63)	26.20 (0.024) 24.40 (0.004) 8.40 + (0.135)	0.079 + (0.14) 0.111 + (0.29) 0.070 + (0.28)	0.88 14 0.85 9 0.92 + 5
	MIMIC 6-1-2b MIMIC 5-1-2a MIMIC 4-1-2b MIMIC 3-1-2	--------	0.07 (0.69) 0.07 (0.70) 0.06 (0.63) --	--------	--------	--------	1.00 * (2.63) 1.00 * (2.67) 1.01 * (2.69) 0.98 * (2.61)	0.98 (1.07) 0.96 (1.06) ----	1.19 * (6.79) 1.19 * (6.82) 1.32 * (9.91) 1.30 * (10.04)	1.01 * (2.03) 1.02 * (2.05) 1.01 * (2.03) 1.05 * (2.09)	-0.20 (-0.21) ------	--------	-0.01 (-0.16) -0.01 (-0.26) -0.01 (-0.25) -0.01 (-0.40)	25.09 (0.005) 10.22 + (0.333) 10.21 + (0.177) 5.38 + (0.251)	0.105 (0.04) 0.031 + (0.58) 0.058 + (0.37) 0.050 + (0.41)	0.84 10 0.94 + 9 0.93 + 7 0.94 + 4
	Means of X and Y 27.00% 20.54% 10.20% 7.61% 2.73% 6.46% 0.44% 6.25% 6.53% 7.95% 26.84% 64.63%
	Var. of X and Y	1.106	1.226	0.849	0.253	0.307	0.681	0.041	1.945	0.091	0.178 12.499 5.224

Table 3 :

 3 Estimation output of regression:

	g	Y t	=	0	t u	+	t

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Table 4 :

 4 Estimation output of regression:

	g	Y t	=	1	t u	+	g	t	+	t

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Table 5 :

 5 Dataset

		CAUSES	Sources	Annotations
	X 1	Overall tax and social security burden	BEA	(X 3 + X 4 + X 5+ X 6 )
	X 2	Tax burden	BEA	(X 3 + X 4 + X 5 )
	X 3	Personal Current Taxes/GDP	BEA	Table 3.1. Government Current Receipts and Expenditures/ Table 1.1.5. Gross Domestic Product. Series Id: (W055RC1/A191RC1)
	X 4	Taxes on production and imports/GDP	BEA	Table 3.1. Government Current Receipts and Expenditures/ Table 1.1.5. Gross Domestic Product. Series Id: (W056RC1/A191RC1)
	X 5	Taxes on corporate income/GDP	BEA	Table 3.1. Government Current Receipts and Expenditures/ Table 1.1.5. Gross Domestic Product. Series Id: (W025RC1/A191RC1)
	X 6	Contributions for government social insurance/GDP	BEA	Table 3.1. Government Current Receipts and Expenditures/ Table 1.1.5. Gross Domestic Product. Series Id: (A061RC1/A191RC1)
	X 7	Government Unemploym. insurance	BEA	Table 2.1. Personal Income and Its Disposition/ Table 1.1.5. Gross Domestic Product. Series Id: (W025RC1/A191RC1)
	X 8	Unemployment/ Civilian Labor Force	BLS	Series Id: LNS14000000
	X 9	Self-Employment /Civilian Labor Force	BLS	Employment Level -Non-agricultural, Self-employed Workers /Civilian L.F. (LNS12032192/ LNS11000000)
				Government employment excludes postal (Federal) and
	X 10 Index of bureaucracy	BLS	education (State and local)/ Civilian Labor Force
				(CES9091100001/ LNS11000000)
		INDICATORS
	X 4	M1/M2	BEA	International Monetary Fund Series Id: (11159MA.ZF/11159MB.ZF)
				Table 1.1.6. Real Gross Domestic Product, Chained Dollars.
	X 5	Index of real GDP	BEA	Billions of chained (2000) dollars. Seasonally adjusted at annual rates;
				Series Id: A191RX1/(Real GDP Q1:1990)
	X 6	Civilian labor force participation rate	BLS	Labor Force Statistics from the Current Population Survey Series Id: LNS11300000

Table 6 :

 6 Unit root analysis

	Variable	Incl. Equat.	Level	First difference	Second difference
	Causes		ADF P.P	KPSS ADF P.P	KPSS	ADF P.P	KPSS
	X 1 Overall Tax and S.Sec.burden X 2 Tax burden (X3+X4+X5) X 3 Personal current tax/GDP	C C C	0.462 0.133 0.303* 0.000 0.000 0.080* 0.000 0.000 0.088* 0.503 0.204 0.337* 0.000 0.000 0.088* 0.000 0.000 0.179* 0.377 0.077 0.302* 0.000 0.000 0.057* 0.000 0.000 0.500*
	X 4

Notes: For ADF and PP show the MacKinnon (1996) one-sided p-values; the statistical tests are shown for KPSS; * means stationary at 0.05 level.

  Source: MIMIC 5-1-2a own calculation. The Estimates from 1970 to 1990 are extracted bySchneider, Enste (2000, table 8). Estimates from 1989 to 2003 are extracted bySchneider (2005, table 3.8. The values for 1990-93 are equal to the average of Schneider's estimates for 1989/90 and 1994/95).

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		Figure 4: Shadow Economy Vs Unemployment rate
	MIMIC 5-1-2a Currency demand(Tanzi) Cash Deposit ratio (Gutmann) F o r 25%	Transactions (Feige) MIMIC & Currency demand(Schneider) Tax auditing
	20%	P e
	15%	r e
	0% 5% 10%	e i v e R
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Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK

quarterly growth rate of Official GDP quarterly change of Unempl. rate y = -2,6054x + 0,0134

			10,0%
					8,0%
					6,0%			R	2 = 0,6779
					4,0%
					2,0%
					0,0%
	-3,0%	-2,0%	-1,0%	-2,0% 0,0%	1,0%	2,0%	3,0%	4,0%	5,0%
				-4,0%
				-6,0%
				-8,0%
			-10,0%
					1,5%
	-3,0%	-2,0%	-1,0%	0,0%	1,0%	2,0%	3,0%	4,0%	5,0%

quarterly growth rate of Official GDP quarterly growth rate of Sh. Econ.

			10,0%
		y = 6,7275x -0,0073 R 2 = 0,8271	8,0%
				6,0%
				4,0%
				2,0%
				0,0%
	-1,5%	-1,0%	-0,5%	-2,0% 0,0%	0,5%	1,0%	1,5%
				-4,0%
				-6,0%
				-8,0%
			-10,0%

quarterly change of unemployment rate quarterly growth rate of Sh. Econ.

Individual choose to exit the formal sector to work or operate business in the SE rather than choose to vote against the government in an election.

Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK Submitted Manuscript

For an overview on the relationship between official and unofficial economy see also[START_REF] Dell'anno | Estimating the Shadow Economy in Italy: a Structural Equation Approach[END_REF][START_REF] Dell'anno | The Shadow Economy in Portugal: an analysis with the MIMIC approach[END_REF],Giles et al. (2002).

In literature the association between changes in the unemployment rate and output growth can become less reliable for a variety of reasons, however the predominant factor that has tended to undermine specific representations of Okun's law has been changes in productivity. See among others:[START_REF] Dixon | Okun's Law And Movements Over Time In The Unemployment Rate In Australia[END_REF],[START_REF] Kaufman | An International Comparison of Okun's Laws[END_REF],[START_REF] Sögner | An Analysis on the Structural Stability of Okun's Law: A Cross-Country Study[END_REF].

It is only "partially unobserved" because shadow activities create an extra value added that can be spent in the official economy.

[START_REF] Schneider | Shadow economies: size, causes and consequences[END_REF] for instance state that at least two-thirds of the income earned in SE is immediately spent in the official economy.

The Kernel function was chosen according to Bartlett's criteria and the Newey-West method is used for bandwidths.

As the ADF and KPSS tests are adversely sensitive to the presence of breaks in the data, by showing critical values it is possible to check these values withKurozumi's (2002, table 3, p. 86) critical values.[START_REF] Kurozumi | Testing for stationarity with a break[END_REF] modified KPSS test allows to use consider the distortion in the statistical test distribution caused by a structural break.

Acknowledgements

We thank an anonymous referee for very valuable comments. 11 The authors use a Structural VAR model to show a structural relationship between the unemployment rate and the shadow economy in the long-run.

Editorial Office, Dept of Economics, Warwick University, Coventry CV4 7AL, UK Submitted Manuscript