Abstract:

This study aims to identify the determinants of the informal economy in developed and developing economies. In the study, the determinants of the informal economy in 24 OECD countries are estimated using the PMG model with annual data from 1992-2017. According to the findings, it is found that the level of economic development decreases informality, while high inflation and unemployment rates and increases in social security premium increase informality. It is determined that the increase in the number of refugees coming to the country, increases the labor supply and expands the informal economy. Based on these findings, measures such as increasing the level of economic development of countries, controlling inflation and unemployment rates, and enhancing the efficiency of the social security system may help reduce the informal economy. Fiscal policy decisions to be taken in the struggle against the informal economy without improving the performance of macroeconomic indicators will be insufficient.

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