Investigating the Determinants of the Shadow Economy: The Baltic Region

GÖKMENOĞLU KARAKAYA K., Amir A.

Eastern European Economics, vol.61, no.2, pp.181-198, 2023 (SSCI) identifier

  • Publication Type: Article / Article
  • Volume: 61 Issue: 2
  • Publication Date: 2023
  • Doi Number: 10.1080/00128775.2022.2163905
  • Journal Name: Eastern European Economics
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, Periodicals Index Online, ABI/INFORM, American Bibliography of Slavic & Eastern European Studies (ABSEES), Business Source Elite, Business Source Premier, EconLit, Geobase, PAIS International, Public Affairs Index
  • Page Numbers: pp.181-198
  • Keywords: Baltic countries, panel ARDL, Shadow economy, taxation
  • Ankara Haci Bayram Veli University Affiliated: Yes

Abstract

© 2023 Taylor & Francis Group, LLC.This study investigates the drivers of the shadow economy within the Baltic region, emphasizing the role of financial development, a missing feature from the extant literature. To this end, we analyzed an annual dataset covering the 2009–2019 period for Estonia, Latvia, and Lithuania using panel ARDL and obtained Pooled Mean Group (PMG) estimates. Empirical findings indicate that a rise in the tax burden, further financial development, and institutional development results in the expansion of the shadow economy. However, the establishment of the rule of law and political stability contribute to the contraction of the shadow economy.