Estimating the Size of the Informal Economy in Caribbean States

This paper’s primary goal is to determine the size of the informal sector in the heterogeneous Caribbean countries. The informal economic activities of a country have several implications for their sustainable economic management. First, they have implications for tax revenue and determining what the optimal tax burden should be. Second, unrecorded activities distort national income accounts and any policies that derive from these statistics. The results of the study are based on two methodologies: the electricity consumption method and the currency demand method. In making a final evaluation, the study also considers results and information obtained in other studies. The findings suggest that the size of the informal sector is 20–30 percent in The Bahamas, 30–40 percent in Barbados, 29–33 percent in Guyana, 35–44 percent in Jamaica, 35–45 percent in Suriname, and 26–33 percent in Trinidad and Tobago.