The impact of the informal economy on income distribution

In this study, the definition and dimensions of the informal economy were discussed, followed by an examination of the concept of income distribution, measurement methods, and factors affecting income distribution. This study aimed to measure the impact of the informal economy on income distribution in both developed and developing countries using the ARDL model. To this end, case studies were conducted on Australia and Uruguay. Quantitative research methods were employed to collect data and utilizing the Dynamic General Equilibrium (DGE) model, estimates of informal economy data were considered. The financial, social, and economic variables influenced by the informal economy were identified, and the coefficients of the model were estimated using the ARDL bounds testing approach. In both country examples, a statistically significant long-term relationship between the informal economy and income distribution was found. Additionally, Diagnostic test results were used to assess the adequacy and validity of the ARDL model. According to the findings of the study, in the case of Australia, the effect of the informal economy on income inequality is positive, while in Uruguay, this effect is negative.