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A Bidirectional Causality Between Shadow Economy and Economic and Sustainable Development

2023; Springer International Publishing; Linguagem: Inglês

10.1007/978-3-031-28752-7_13

2522-8293

Eugenia Ramona Mara, Monica Violeta Achim, Sandra L. Clement,

Corporate Taxation and Avoidance

The present chapter examines the relation between shadow economy and economic development from a global perspective for 185 countries over the period 2005–2017. Increasing the economic development in many countries was accompanied by a decline of the level of shadow economy. In the same time, the shadow economy seems to have an impact on economic and sustainable development. For capturing the existence of this bidirectional causality, we will test Granger causality along with the panel econometric analysis realized for low-, middle-, and high-income countries. The main empirical findings based on fully modified ordinary least square (FMOLS) and Granger causality tests confirm the significant impact of shadow economy on the economic development. The results of this study can play an important role in the political fight against the shadow economy, even if in some cases the positive impact is confirmed. The government should be aware of the fact that shadow economy will decrease the public revenue, and this will lead in the long run to lower public investments. In this context, the sustainable economic development is affected and all the political efforts for combating the shadow economy must consider all the favoring factors of shadow economy.