Institutional drivers of shadow economy. Empirical evidence from CEE countries

• Published in: Revista de economía mundial 2022-01, Vol.60 (60), p.67-100
• Main Authors: Iacobuta-Mihaita, Andreea-Oana, Pintilescu, Carmen, Clipa, Raluca Irina, Ifrim, Mihaela
• Format: Article
• Language: English
• Subjects: central and eastern EU countries; COVID-19; Crises; Economic development; GDP; Gross Domestic Product; Informal economy; institutions; Longitudinal studies; Pandemics; panel data analysis; principal component analysis; Principal components analysis; shadow economy; Socioeconomic factors
• ISSN: 1576-0162; 1576-0162; 2340-4264
• DOI: 10.33776/rem.v0i60.5620

Crises, such as the current pandemic, and the measures meant to tackle with them tend to increase the presence of the informal sector in the official economy, affecting mostly the emerging and developing economies. This situation is characteristic for the eleven CEE countries. These also display certain weaknesses at the economic and institutional level, which increase their vulnerability in times of crisis, with a real danger for the informal economy to grow.This paper aims to investigate the role of the institutional framework in explaining shadow economy in the mentioned countries. The methodological approach consists in a panel analysis using data from the 1996-2017 period and a principal component analysis meant to identify the specificities of each country. Our results demonstrate the influence of both formal and informal institutions on the shadow economy while country-level particularities show that institutional factors act differently in different socio-economic and political environments; consequently, the measures aimed to limit shadow economy should be adapted to each country’s specific context.