What is Observable Consumption

The aim of this chapter is to investigate shadow economy on an EU-27 and Turkey basis. For this purpose, firstly the definition, causes\ and consequences of shadow economy together with its relationship with tax evasion are discussed. In addition, the causes of shadow economy are examined for EU-27 during the period 2003-2012. It was done both statistically and empirically by employing scatter plot diagrams and the random effects model. While empirical findings confirm the effects of taxes, income level, trade and population on the shadow economy, statistical findings mention the effects of governance related indicators. Another main finding of this chapter is about Turkey. Accordingly, shadow economy in Turkey is observed to be higher than in the EU-27 and taking into consideration the comparative statistical findings about the causes of shadow economy, the main reasons of shadow economy in Turkey are thought to be governance related.