Siyaset, Ekonomi ve Yönetim Araştırmaları Dergisi 2147-6071 2147-7035 Politik Ekonomik ve Sosyal Araştırmalar Merkezi The Effect of Informal Economy on the European Debt Crisis The Effect of Informal Economy on the European Debt Crisis Saraç Mehmet Sakarya University, School of Business Başar Remzi PhD Candidate, Sakarya University, Institute of Social Sciences 04 01 2014 2 2 25 37 Copyright © 2014, Siyaset, Ekonomi ve Yönetim Araştırmaları Dergisi 2014 Siyaset, Ekonomi ve Yönetim Araştırmaları Dergisi

The informal economy poses a problem not only for developing countries today; it also appears to be a growing problem in all advanced countries of the world. This paper empirically investigates whether the size of informal economy has any effect on overindebtedness in the context of Europe. Thus, we attempt to provide empirical evidence that it is not a coincidence that those countries most severely affected from the crisis are also the ones with the highest size of informal economy, such as Greece, Italy, Spain and Portugal. The empirical analysis is based on the official data published by European Statistical Agency and the World Bank. The relationship between the informal economy and indebtedness is examined through GMM model on the panel data of 27 EU countries for the years 1999 through 2007. Findings show that there is a significant relationship between informal economy and indebtedness.

The informal economy poses a problem not only for developing countries today; it also appears to be a growing problem in all advanced countries of the world. This paper empirically investigates whether the size of informal economy has any effect on overindebtedness in the context of Europe. Thus, we attempt to provide empirical evidence that it is not a coincidence that those countries most severely affected from the crisis are also the ones with the highest size of informal economy, such as Greece, Italy, Spain and Portugal. The empirical analysis is based on the official data published by European Statistical Agency and the World Bank. The relationship between the informal economy and indebtedness is examined through GMM model on the panel data of 27 EU countries for the years 1999 through 2007. Findings show that there is a significant relationship between informal economy and indebtedness

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