Advances in Economic Development through Control of the Underground Economy

In an era of ongoing global development and increasing focus on sustainability, the underground economy persistently identifies novel areas for expansion. This dynamic growth compels states to engage in an ongoing search for effective strategies to regulate and mitigate its effects, while simultaneously addressing the broader implications for economic development. Poverty, financial development, income inequality, and legal framework are analyzed in this paper in relation to the underground economy for the European Union member states between 2004 and 2022 by way of a panel model. Our findings reveal a positive relationship between the levels of poverty among individuals and the underground economy. Conversely, the interplay between the underground economy and both financial development and the legal framework exhibits a detrimental effect. In conclusion, our analysis reveals that the three primary variables examined—poverty, financial development, and legal framework—substantially influence the scale of the underground economy, with important implications for overall economic development and sustainable growth.