Impact Participation Rate and Unemployment Rateon Underground Economy in OECD Countries

In the decision system, policy makers decide based on an information system including statistical indexes. If information system would be based on shadow economy, the policy makers will not achieve to desired results, because information and results are subjected to estimate by error. This part of economy effects on important indexes such as income redistribution, employment, government income and finally social welfare. So study about this part of economy and how affecting other parts of economy from this will help government to control its effects. In this paper, we have tried to analyze the effect of shadow economy on the other parts especially labor market and tax system of a country via panel data for 17 developed countries of OECD between 1994-2008 and then presented the suggestions to simplify the control of this part.As a consequence, in the labor market, partnership rate has significant effect negatively and unemployment rate has significant positively on expanding the shadow economy and the regulation burden have also direct effect on this part of economy. About the tax, tax burden has significant effect positively on shadow economy growth and versus change in tax burden of these countries doesn’t have significant effect on this part of studied countries.