The shadow economy Kuznets’s curve panel data analysis

The review of recent literature shows the relationship between shadow economy and economic growth is ambiguous. This paper attempts to answer whether the relationship between shadow economy and economic growth depends on the level of development or not? In this way, the Shadow Economy Kuznets’s Curve (SEKC) is estimated in two quadratic -Inverted U- and cubic -N shape- functional form by using shadow economies data of 21 selected OECD countries for time period of 1995-2006. The panel data analyses results show that cubic functional form justifies the relationship between shadow economy and economic growth better, this relationship depends on the level of development and the shadow economy has a positive effect on the official economy.