CAN CULTURAL DIMENSIONS EXPLAIN THE LEVEL OF SHADOW ECONOMY IN THE EU?
CAN CULTURAL DIMENSIONS EXPLAIN THE LEVEL OF SHADOW ECONOMY IN THE EU?

Summary/Abstract: Informal or shadow economy and its multiple determinants have gained the attention of economic research, benefiting from a vast body of literature in the field. Even so, the nexus between the expansion of the informal economic sector and institutions, perceived as good practices, has been less explored. If the formal institutional component is easier to quantify in terms of impact determined on the informal economy, things are totally different when emphasizing how the informal institutions cause the auspicious circumstances as to further escalate shadow practices. Starting from such premises, our paper investigates the nexus between informal institutions, traditions, culture, values, attitudes, beliefs, or mentality that define the basic identity of any society and the predisposition of those societies towards shadow economy, applied to the EU -28. In other words, by using a mixed methodological approach based on the cultural dimensions provided by Geert Hofstede and a unique dataset of variables representative for the shadow economy and quality of informal institutions, we employ a cluster analysis and panel data analysis for the EU countries, including the United Kingdom. As expected, the results have fully validated the imperceptible contribution of unofficial institutions to the amplitude and gravity of informal economy, thus affecting the long-term prosperity of the country.

• Details
• Contents