How Concerned Should We Be about the Size of the Shadow Economy - Implications of the Informal Sector on the Romanian Economy -
How Concerned Should We Be about the Size of the Shadow Economy - Implications of the Informal Sector on the Romanian Economy

Summary/Abstract: The Romanian shadow economy developed spectacularly after the social and political events of 1989, reaching, according to some estimates, the level of around 40% of GDP. Given its significant size, it creates a major source of concern for the economists. This paper provides an overview of the Romanian informal sector, in terms of its extent and implications. Thus, it examines the particular aspects related to the forms of the shadow economy that coexist with regular economic activities. It intends to evaluate the dimensions of this phenomenon and its possible causes, focusing on both inherited behavioural patterns (the tradition of "Balkan mentalities"), and the new opportunities stemming from a weak institutional framework of the market economy. Moral issues, related to the fairness and the asymmetry of the relationship between the individual and the State, and the structural flaws in the legislation are also considered as catalysts for economic fraud. Finally, the paper accounts for the effects and the impact of this sector on the economy as a whole, and, ultimately, on the Romanian society. The effects are examined not only in the traditional view, that considers irregular activities as a source of confusion when designing macroeconomic policies meant to solve the problems of inflation and unemployment, but also from a radical perspective, mostly connected with the neo-liberal thinking. Unsurprisingly, according to the radical view, the informal economy is correlated with positive effects, representing an indication of a rational economic choice (when facing the high costs of legality) aiming to increase efficiency and to handle variability and change in the economic system.

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