Determinants of the Informal Economy in EU Countries

Ozan Gülhan, Alban Hetemi and Egzon Osmani

Romanian Economic Journal, 2020, vol. 23, issue 75, 2-15

Abstract: The purpose of the paper is to explore determinants of informal economy for EU countries’ economies which contributes to the current literature. The authors used a dynamic panel Generalised Methods of Moments (GMM) technique. Results are provided and hypothesis are tested that tax burden, regulatory burden and weak legal environment stimulate economic agents to perform activities through informal economy. Comparing with other studies, results show that tax burden has significant and positive effect on informal economy. According to the results of monetary freedom, rule of law, corruption and gross national income, they have significant negative effects on informal economy. The direction of these effects is not in line with past literature for corruption which is found negative and contrary to literature. The key contribution of the paper is that it provides clear results about determinants of informal economy in EU countries which is important for academics, researchers and policy makers.

Keywords: Informal economy; legal environment; regulatory quality (search for similar items in EconPapers)
JEL-codes: C39 C82 D73 E26 H26 O17 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:rej:journl:v:23:y:2020:i:75:p:2-15

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