Shadows of Resilience: Exploring the Impact of the Shadow Economy on Economic Stability

This study analyzes the shadow economy within the European Union and its influence on the economic resilience of member countries. Data spanning almost two decades and covering a broad spectrum provide a unique opportunity to examine the impact of the shadow economy on economic stability across various economic cycles. Regularization techniques such as Lasso and Automatic Relevance Determination (ARD) combat possible collinearity and overfitting arising from the inclusion of irrelevant and redundant variables. The shadow economy interacts with key indicators of economic resilience, such as GDP, national debt, and population, across different phases of economic stability and turbulence. The preliminary findings suggest a complex and varied interaction between the shadow economy and economic resilience. This study provides a valuable foundation for policies aimed at stability and sustainable economic growth.