Factors of the Shadow Economy in the Republic of Albania

The shadow economy has been of interest to macro policy makers in today’s world. The shadow economy may erode significantly a country’s tax and social security base by effecting negatively the provision of public services. The objective of this study is to contribute to the current literature on the factors of the shadow economy, respectively by focusing in the Republic of Albania. In order to achieve this objective, the authors used multiple variable linear regression. The study provides results and tests hypotheses about effect of tax burden, government effectiveness and rule of law on the shadow economy. Comparing with other studies, our study found out that not adequate of legal environment has positive impact on shadow economy. Same with other studies, this study found out that tax burden and government effectiveness have negative impact in shadow economy. The key contribution of the study is that it provides results about the factors of shadow economy which is important for policy makers, strategists and academics.