Emanuele Bracco

This paper investigates the effects of immigration and immigration amnesties on the shadow economy. We make use of an array of Italian immigration data and original shadow economy estimates for the years 1996–2006, comprising a panel of local‐level aggregate statistical information, and a microlevel survey of representative households. We find a robust and positive relationship between the presence of immigrants and the unobserved economic activity at the local level. Nevertheless, the impact of immigration on the Italian unofficial economy is relatively small in magnitude. We also exploit the discontinuity created by the implementation of the 2002 immigration amnesty, which increased the stock of documented migrants by almost 50%. According to our results, the Italian 2002 immigration policy only slightly weakens the link between immigration and the extent of the unobserved economic activity.