Analysis of Correlations between Economic Growth (Rate of Real GDP) and the Underground Economy

Author:Silviu Pripoaie, Rodica Pripoaie
Position:Danubius University of Galati, Economics Department - Danubius University of Galati, Economics Department
Pages:581-584
SUMMARY

Analysis of performance of any economy involves the measurement and correlation of three basic elements: the rate of economic growth, the rate of inflation and unemployment rate. When the rate of growth (rate of real GDP) is high, the production of goods and services is growing and therefore increasing the number of jobs, decrease unemployment and raise living standards. If the economy is in... (see full summary)

 
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Analysis of Correlations between Economic Growth
(Rate of Real GDP) and the Underground Economy
Pripoaie Silviu1, Pripoaie Rodica2
1Danubius University of Galati, Economics Department
2Danubius University of Galati, Economics Department, rodicapripoaie@univ-danubius.ro
Abstract: Analysis of performance of any economy involves the measurement and correlation of three
basic elements: the rate of economic gr owth, the rate of inflation and unemployment rate. When the r ate
of growt h (rate of real GDP) is high, t he production of goods and services is growing and therefore
increasing the number of jobs, decrease unemployment and raise living standards. If the economy is in
recession phase, increasing fiscal pressure to ensure the necessary budgetary funds triggers complex
economic mechanisms. Rules more strictly is that t hose who are not able to operate in the normal
economy to sli de towards the underground economy, and this not because he wants to tax evasion, but
because they simply can not cope with new regulations. It is widely accepted in economic theory and
practice the idea that reliability scale macroeconomic indicators of a country is affected by size of
underground economy and the various tests made so far on this subject, focusing either on the social
aspect or the economic or moral, or emphasizes the illegal or the edge of legality. This has led to various
studies in this area do not provide comparable data or provide dat a to the contrary. Worldwide were put
in place, however, some calculation methods provided that applied the same country and same period,
the results are rarely consistent, sometimes even in fundamentally different.
Keywords: economic growth, unemployment, inflation, underground economy, fiscal pressure
Analysis of performance of any economy involves the measurement and correlation of three
basic elements: the rate of economic growth, inflation and unemployment. When the rate of
growth (rate of real GDP) is high, the production of goods and services is growing and
therefore increasing the number of jobs, decrease unemployment and raise living standards.
The correlations between these elements has been the subject of various investigations in the
field and the most important studies refer to:
Relationship: economic growth - inflation - unemployment. The specialists argue that
if the rate of growth of real GNP per capita would remain at 2% per year, then consider that
per capita GDP would double every 35 years and so each generation can hope at life double
than at present. If, however, GNP per capita would increase by 1% per annum will be needed
70 years for doubling the living. Should therefore take into account that small differences in
the rate of economic growth over long periods can lead to large differences between the
lifestyles of different successive generations.
Relationship: economic growth - unemployment or Okun's Law. This analysis reflects
the relationship between economic’s growth rate and unemployment rate and is known as
"Okun's Law" after the name of Arthur Okun of the Brookings Institution in the U.S..
According to this law "for each of the 2.2 percent real GDP growth, achieved in a year, the
unemployment rate falls by one percent. This is a statistical and does not apply to any
country, but only for U.S. and round the Okun did research. Such a statistical relationship can
be deducted for each country separately, depending on the conditions of stage that through,
and could be used in fundamental policy of strategic economic expansion to reduce
unemployment to a convenient size.
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