The relationship between informal economy and economic fluctuations: Turkey case

In the first part of study, the defination, reasons and method of informal economy is defined. In the second part, the size of informal economy in the world and in Turkey is researched. In the third part, the defination, reasons of economic fluctuations and the relations between informal economy and main macro economic variables are defined. In the fourth part, first of all the projection of informal economy in Turkey in the period of 1975-2008 is determined by using Tanzi?s method of cash demand and then by using Granger causality test, the relation between informal economy and economic fluctuation is researched. In the result of these tests, ?There is no one way causality relation from informal economy to the economic fluctuation? is found. But in economic fluctuations, a poor causuality is found towards the informal economy. It is determined that, increasing informal economies causes volatility and inconsistency in countries business cycles, consumption, production and investments. In order to ensure the fluctuations in economic activities to be lived softly, taking necessary precautions is proposed by decreasing the range of informal economy.