Modeling the Dynamics of Cash Transactions in the Urban Shadow Economy

Today there is a range of metrics used to assess the economic life of the city, yet some of its spheres remain hidden from researchers’ eyes. In the literature they are frequently referred to as parts of the shadow or informal economy. Among the examples of activities that constitute the informal economy are street vending, uncertified taxi services, and violation of regulations on selling alcoholic beverages.

Though not all the enterprises are hands-down criminalized, they still evade taxation. In addition, quality control measures are not applied to these goods and services as objects of transactions, thus leaving the participants, including both consumers and suppliers, beyond the coverage of any legal support. In order to understand the spatio-temporal patterns of the operation of this system, and to anticipate the emergence of problems, we propose to reproduce its key components dynamically in virtual space.

We can model the informal economic processes in a “bottom-up” manner, ascending from the individual elements of the shadow economy to its overall states, solving the issue of the incompleteness and fragmentation of reliable data about its structure and underlying processes. In other words, we suggest locating the regions that have the potential to facilitate the expansion of the informal economy through the rule-based reproduction of activities at venues where goods and services are realized. Given the locations of such hotspots, we expect to observe their daily dynamics, which can be, in turn, compared with the dynamics of the formal sector.

As an illustration of the ideas behind this research, a simulation of the daily consumer activity dynamics inside the informal sector of the economy of Saint-Petersburg is presented.


  • Kurilkin A.V., Viatkina O.O., Mityagin S. A., Ivanov S.V.

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