Shadow Economy Causes Wrong Economic Policy

It is well known that shadow economy has many impacts on the economy and distorts competition. It is also known that shadow economy is hard to restrict without some repercussions regarding unemployment creation, investment distortions, economic growth, income distribution worsening, stock prices and so forth. In the present model an attempt will be made to estimate empirically how, due to shadow economy, policy makers can take wrong decisions about the problem of general government debt as a percentage of GDP. This finding will urge governments to restrict efficiently shadow economy. Our sample covers annually for the period 1999-2015 Europe, Japan and the United States