Is There an Optimal Trade-Off Between Shadow Economy and Government Debt to GDP?

Abstract

Shadow economy is harmful to the economy for various reasons. On the other hand shadow economy restriction has some repercussions. In other words, there is perhaps a sort of trade-off between the restriction of shadow economy and the resulting macroeconomic repercussions. Hence, in the present paper an attempt has been made to look for an optimal shadow economy size with respect to government debt as % of GDP. Our sample includes annually for the period 2000-2015 Europe, Japan and the United States.

Keywords: GDP; Official Economy; Shadow Economy; Economic Growth; Investment; Entrepreneurship; Unemployment; Government Debt; Taxation; Stock Market; Social Welfare; Cost-Benefit Analysis; General Equilibrium Analysis; Optimization; Econometric Models with Panel Data (Single Equation)

JEL Classification: O17; O4; D9; L26; E24; F34; H2; I3; D5; C61; C23