Socio-Economic Inclusiveness And The Size Of Shadow Economy: A Cross-Country Analysis
This study aimed at illuminating potential contributors of the shadow economy in a broader perspective. Since, in actual world economic economic units are directly or indirectly influenced by myriad socio-economic, political, legal and other institutional factors. We thus have estimated impact of several inclusive growth measures on the shadow economy. As main factors of interest, the study uses complex factors, including the global competitiveness, prosperity, state fragility, and world economic freedom indices. These variables reflect fiscal, monetary, social, cultural, demographic, legal, and other inclusive aspects of economic development. To analyze empirically effect of indices on the size of underground economy the study includes 140 countries with the time period from 2009 - 2015. We employed Fixed Effects model (FEM) and Random Effects model (REM) to draw general conclusion about correlation and significance of determinants on the shadow economy. The results support our overall hypothesis, reporting strong negative effect of prosperity, the global competitiveness, and economic freedom indices on the size of economic informality. Furthermore, results reveal that the size of the shadow economy increases as country gets more fragile or fails providing well-functioning socioeconomic systems and decent living standards for its citizens.
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