The Impact of National Economic Development on the Shadow Economy

Abstract

A country's competitiveness depends primarily on its economic development which in turn is affected by a number of factors. Some of these, such as investment, favorable business conditions, legal environment, etc., promote economic development, while others, such as low labor productivity, insufficient staff qualification that fails to meet the requirements of the labor market, etc., slow down the pace of economic development. The latter category describes the phenomenon of the shadow economy (SE). Research into shadow economies is dominated by the analysis of the local impact factors. Nevertheless, the results of such analyses do not reveal the general patterns of the shadow economy, without the knowledge of which it is difficult to develop effective preventive measures. The basic determinants of the shadow economy must first and foremost reflect national economic development, as these particular determinants have the most significant impact on the size of the phenomenon of the shadow economy. National economic development can be expressed by employing various indicators, but recently it has most commonly been expressed by GDP per capita. GDP reflects national competitiveness, integrates a number of domestic factors, and is easily accessible and publicly available in national and international statistical sources. In addition, this indicator is calculated by employing a unified methodology, which makes it universal, allowing the comparison of countries in different situations. As presented in this article, the analysis of the relationship between economic development and the size of the shadow economy allows the division of all the EU member states into characteristic groups by the level of their economic development as well as size of the country's SE. Our research attempts to reveal the regularity of the above-mentioned relationship: the higher the level of national economic development, the lower the size of the shadow economy.

A country's competitiveness depends primarily on its economic development which in turn is affected by a number of factors. Some of these, such as investment, favorable business conditions, legal environment, etc., promote economic development, while others, such as low labor productivity, insufficient staff qualification that fails to meet the requirements of the labor market, etc., slow down the pace of economic development. The latter category describes the phenomenon of the shadow economy (SE). Research into shadow economies is dominated by the analysis of the local impact factors. Nevertheless, the results of such analyses do not reveal the general patterns of the shadow economy, without the knowledge of which it is difficult to develop effective preventive measures. The basic determinants of the shadow economy must first and foremost reflect national economic development, as these particular determinants have the most significant impact on the size of the phenomenon of the shadow economy. National economic development can be expressed by employing various indicators, but recently it has most commonly been expressed by GDP per capita. GDP reflects national competitiveness, integrates a number of domestic factors, and is easily accessible and publicly available in national and international statistical sources. In addition, this indicator is calculated by employing a unified methodology, which makes it universal, allowing the comparison of countries in different situations. As presented in this article, the analysis of the relationship between economic development and the size of the shadow economy allows the division of all the EU member states into characteristic groups by the level of their economic development as well as size of the country's SE. Our research attempts to reveal the regularity of the above-mentioned relationship: the higher the level of national economic development, the lower the size of the shadow economy.