Analysis of the Role of Underground Economy in Economic Welfare

Increasing human well-being as one of the priorities of economic development requires the identification of potential government revenues. Therefore, according to this necessity, the aim of the present research is to investigate the role of the underground economy on the economic well-being in Iran for the period of 1976-2021. For this purpose, the volume of the underground economy was estimated by the MIMIC method and the research model was estimated by the ARDL approach. The estimation of the size of the underground economy shows that during the 46 years under investigation, the average relative size of the size of the underground economy is equal to 15.7%. Also, the combined index of well-being has been used in this research. Which has an average of 125.9 in the research period. The findings from the estimation of the model indicate that in the long run of the underground economy, inflation and the growth of the exchange rate (dollar) of the free market have an adverse effect on economic well-being. The size of the government also has an inverted U-shaped effect on economic well-being. In such a way that the optimal size of the government in influencing the economic welfare is 14.8% and above that, it leads to a decrease in the economic welfare.