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Financial Development and Shadow Economy in European Union Transition Economies

Author

Listed:
  • Yilmaz Bayar

    (Usak University, Turkey)

  • Omer Faruk Ozturk

    (Usak University, Turkey)

Abstract

The shadow economy has been a serious problem with varying dimensions in all the income group economies and has significant adverse effects on the development of economies. Therefore, all the countries have tried to combat with the shadow economy by taking various measures. This study researches the interaction among shadow economy, development of financial sector and institutional quality during 2003–2014 period in European Union transition economies employing panel data analysis. The empirical findings suggested a cointegrating relationship among shadow economy, financial sector development and institutional quality. Furthermore, financial development and institutional quality affected the shadow economy negatively in the long term.

Suggested Citation

  • Yilmaz Bayar & Omer Faruk Ozturk, 2016. "Financial Development and Shadow Economy in European Union Transition Economies," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 14(2 (Summer), pages 157-173.
  • Handle: RePEc:mgt:youmgt:v:14:y:2016:i:2:p:157-173
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    References listed on IDEAS

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    1. Niloy Bose & Salvatore Capasso & Martin Andreas Wurm, 2012. "The impact of banking development on the size of shadow economies," Journal of Economic Studies, Emerald Group Publishing, vol. 39(6), pages 620-638, December.
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    3. Keith Blackburn & Niloy Bosey & Salvatore Capasso, 2008. "Financial Development and the Underground Economy," Working Papers 5_2008, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
    4. Blackburn, Keith & Bose, Niloy & Capasso, Salvatore, 2012. "Tax evasion, the underground economy and financial development," Journal of Economic Behavior & Organization, Elsevier, vol. 83(2), pages 243-253.
    5. Dumitrescu, Elena-Ivona & Hurlin, Christophe, 2012. "Testing for Granger non-causality in heterogeneous panels," Economic Modelling, Elsevier, vol. 29(4), pages 1450-1460.
    6. Restrepo-Echavarria, Paulina, 2015. "Measuring Underground Economy Can Be Done, but It Is Difficult," The Regional Economist, Federal Reserve Bank of St. Louis, issue Jan.
    7. Axel Dreher & Christos Kotsogiannis & Steve McCorriston, 2009. "How do institutions affect corruption and the shadow economy?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 16(6), pages 773-796, December.
    8. Bittencourt, Manoel & Gupta, Rangan & Stander, Lardo, 2014. "Tax evasion, financial development and inflation: Theory and empirical evidence," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 194-208.
    9. Dominik Enste, 2010. "Regulation and shadow economy: empirical evidence for 25 OECD-countries," Constitutional Political Economy, Springer, vol. 21(3), pages 231-248, September.
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    12. Capasso, Salvatore & Jappelli, Tullio, 2013. "Financial development and the underground economy," Journal of Development Economics, Elsevier, vol. 101(C), pages 167-178.
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    1. repec:eee:quaeco:v:66:y:2017:i:c:p:149-158 is not listed on IDEAS

    More about this item

    Keywords

    shadow economy; financial development; institutional quality; panel data analysis;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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