Advances in Economic Development through Control of the Underground Economy

Sorina Emanuela Ștefoni, Iulian Viorel Brașoveanu and Nicoleta Cristache ()
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Sorina Emanuela Ștefoni: Department of Finance, Bucharest University of Economic Studies, 010961 Bucharest, Romania
Iulian Viorel Brașoveanu: Department of Finance, Bucharest University of Economic Studies, 010961 Bucharest, Romania
Nicoleta Cristache: Faculty of Economics and Business Administration, Dunarea de Jos University of Galati, 800008 Galati, Romania

Sustainability, 2024, vol. 16, issue 19, 1-12

Abstract: In an era of ongoing global development and increasing focus on sustainability, the underground economy persistently identifies novel areas for expansion. This dynamic growth compels states to engage in an ongoing search for effective strategies to regulate and mitigate its effects, while simultaneously addressing the broader implications for economic development. Poverty, financial development, income inequality, and legal framework are analyzed in this paper in relation to the underground economy for the European Union member states between 2004 and 2022 by way of a panel model. Our findings reveal a positive relationship between the levels of poverty among individuals and the underground economy. Conversely, the interplay between the underground economy and both financial development and the legal framework exhibits a detrimental effect. In conclusion, our analysis reveals that the three primary variables examined—poverty, financial development, and legal framework—substantially influence the scale of the underground economy, with important implications for overall economic development and sustainable growth.

Keywords: informal economy; economic development; poverty; financial development; legal framework; panel regression (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2024
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