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Robust determinants of the shadow economy

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  • Sarsen Zhanabekov

Abstract

This study examines the determinants of the shadow economy by employing Bayesian Model Averaging technique, which allows taking into account model uncertainty. Having estimated millions of combinations of models, the study revealed that while higher GDP growth rate, trade openness, and better institutional quality lead to the reduction of the informal sector, higher rate of unemployment, complicated regulations, and the large size of government are associated with a greater size of the shadow economy. Lessening bureaucratic complexity by eliminating burdensome regulations could help to reduce both wasteful spending of government on operating these regulations and the size of the underground economy.

Suggested Citation

  • Sarsen Zhanabekov, 2022. "Robust determinants of the shadow economy," Bulletin of Economic Research, Wiley Blackwell, vol. 74(4), pages 1017-1052, October.
    • Handle: RePEc:bla:buecrs:v:74:y:2022:i:4:p:1017-1052
    DOI: 10.1111/boer.12330
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    Cited by:

    1. Colin C. Williams, 2023. "A Modern Guide to the Informal Economy," Books, Edward Elgar Publishing, number 18668.
    2. Salinas, Aldo & Ortiz, Cristian & Changoluisa, Javier & Muffatto, Moreno, 2023. "Testing three views about the determinants of informal economy: New evidence at global level and by country groups using the CS-ARDL approach," Economic Analysis and Policy, Elsevier, vol. 78(C), pages 438-455.
    3. Tobias Zander, 2023. "FDI Flows and the Effects of the Shadow Economy: Evidence from Gravity Modelling," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 9(4), pages 429-454, October.
    4. Maria Blikhar & Valerii Syrovatskyi & Ulyana Bek & Maria Vinichuk & Lesia Kucher & Maryana Kashchuk, 2023. "Shadow Economy vs Economic Security: Trends, Challenges, Prospects," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 3, pages 130-147.

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