The Shadow Economy and Its Determinants

The shadow economy includes economic activities that are not recognized and unregulated by public authorities. These activities cause significant challenges for policymakers by reducing tax revenue and weakening regulatory frameworks. Understanding the factors that influence the shadow economy is crucial for developing effective policies to mitigate its adverse effects. This study aims to compile, explore, and analyze previous studies on the shadow economy and identify its determinants. This study uses the PRISMA methodology (Preferred Reporting Items for Systematic Reviews and Meta-Analyses) to conduct a systematic literature review on the shadow economy. 25 articles that fit these objectives were selected and analyzed. The study results indicate that eight determinants affect the shadow economy: corruption, Institutional Quality, Economic Development, Taxes, Government, Financial Development, Globalization, and Industrial Development. To tackle the shadow economy, a comprehensive approach that includes institutional improvements, fair tax policies, enhanced transparency, strong law enforcement, and inclusive economic development is necessary. Further research and in-depth analysis of these factors can help develop more effective strategies to reduce the shadow economy's adverse impacts.