The Impact of the Shadow Economy on the Stability of the Financial System of the State
DOI:
https://doi.org/10.56294/sctconf20251423Keywords:
Shadow Economy, Financial Stability, Economic Policy, Tax Revenues, Sustainable Development, RisksAbstract
The problems of shadow economy and financial stability have always been a concern for both in developed and developing countries. It is important for policymakers trying to create economic resilience and stability to understand how the shadow sector affects finances. This aim of this research is to examine the impact of shadow economy on macroeconomic factors such as GDP growth, inflation and interest rate. The study also analysed the impact of the shadow economy on financial stability in different countries. The research employs econometric analysis, including panel data regression, structural equation modelling, and case studies to reveal these dynamics. Model specifications are determined using lagged variables, group analysis, fixed and random effects models, and the Hausman test. Direct and indirect effects are estimated simultaneously using structural equation modelling, showing that shadow economic activity plays a mediating role in the financial sphere. The results show that deeper shadow economy reduces stability and undermines it particularly strongly in countries with a large shadow sector. It was proved that countries with a small size of shadow economy demonstrate a higher financial stability. This study emphasizes the need to create effective rules and strategies to integrate that share of shadow economies into the generally accepted. Further research may focus on examining the long-term impact of shadow economy on financial stability across economic cycles.
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Copyright (c) 2025 Hennadii Mazur, Oleksandr Zinevych , Olga Guseva , Anatoliy Babichev , Serhiy Valyvsky (Author)
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