The Shadow Economy and Culture: Evidence in European Countries

Monica Violeta Achim, Sorin Nicolae Borlea, Lucian Vasile Găban and Alin Adrian Mihăilă

Eastern European Economics, 2019, vol. 57, issue 5, 352-374

Abstract: This paper investigates whether culture plays a role in the size of the shadow economy in countries. We also examine the impact of religion and happiness variables on the size of the shadow economy across countries after controlling for governance, economic development, and the tax burden, using panel data on 31 European countries over the period 2005–2015. First, we found that the gross domestic product (GDP) of European countries is underreported by 19 percent because of unrecorded shadow economy activities. Second, our empirical findings document that collectivism, femininity, a short-term orientation, restraint, and religiosity increase the size of the shadow economy, whereas greater happiness decreases it. The findings are important for policy makers so that they can include cultural factors in their analysis of people’s behavior regarding the shadow economy and thus make the most appropriate decisions on how to fight this phenomenon.

Date: 2019
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DOI: 10.1080/00128775.2019.1614461

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