Shadow Economy and Economic Growth

Abstract

This work provides an opportunity to analyze the relationship between the informal economy and eco-nomic growth, the methodology used is inspired by the work of Friedrich schneider (2018). To this end, we empiri-cally address this point using an econometric model over the period 1996-2015. From the model prediction, we find the existence of a negative causal effect of the Shadow economy on economic growth. Our results state that the sim-ultaneous effect of the Shadow economy and the rule of law variables and regulatory quality are negative. The size of the informal sector depends positively on tax law indicators and government policies and regulations, and an in-crease in the size of the informal sector is detrimental to growth.