The authors use a two-sector dynamic general equilibrium model; they developed an approach to estimate the size of the shadow economy. Compared to the methods used in the current literature, this approach overcomes three main issues. First, it does not rely on ad-hoc econometric specifications and assumptions. Second, as it does not estimate the size of the shadow economy using statistical methods, it does not include statistical errors. Finally, as opposed to the currently existing methods, it does not lack micro-foundations.