Spatial Distribution of the Informal Economy. A Theoretical and Empirical Investigation

Drawing on the existing theory, in this paper we analytically evaluate the limitvalues of certain important parameters involved in models used to estimate the size of the informal economy and to explain its workings. We develop a model which combines the level of income and the tax rate as the main determinants of the informal economy. On the basis of this model, we perform simulations using the available data. The second goal of the study is to extend investigation to regional level and, finally, to obtain a map reflecting the spatial distribution of the informal economy in Romania.