The impact of shadow economy and/or corruption on private consumption: further evidence from selected Eurozone economies

According to neoclassical perception the growth of private consumption appears to be higher during (or after) fiscal consolidation periods via the fiscal multiplier effect. Therefore, private consumption booms are more likely to be associated with large cuts in deficits by either increasing taxes or by reducing public spending. Simultaneously, only recently shadow economy and corruption have gained scientific attention, and in the studies appear to have mainly negative effects on real economy. This research uses an alternative growth of private consumption approach using dynamic panel data regression analysis of seventeen Eurozone countries over the period 1995–2015. Empirical findings display that corruption and/or shadow economy might be substitutes regarding its effect on individuals’ real consumption growth. Furthermore, consolidation periods experience a marginal lower private growth of consumption, questioning the generality of neoclassical theory implication.