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Does shadow economy widens or narrows the income inequality in Malaysia? Some robust results

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dc.contributor.authorMuzafar Shah Habibullah
dc.contributor.authorBadariah H. Din
dc.contributor.authorYogeeswari Subramaniam
dc.contributor.authorMuhammad Daaniyall Abd Rahman
dc.contributor.authorAdzzahir Ifwad Adzman
dc.contributor.authorBaharom Abdul Hamid
dc.date.accessioned2026-06-11T10:39:35Z
dc.date.available2026-06-11T10:39:35Z
dc.date.issued2026
dc.description.abstractThis study was undertaken to contribute further to the body of knowledge of shadow economy studies, by investigating how the scale of the shadow economy influences income inequality in the context of a developing country, with Malaysia serving as the case study. Utilizing annual data from 1980 to 2018, the analysis draws upon four distinct shadow economy estimations: (i) the Multiple Indicator-Multiple Cause (MIMIC) model-based figures presented by Medina and Schneider (2019); (ii) the estimates developed by Elgin, Kose, Ohnsorge, and Yu (2021), which include both (a) MIMIC-based and (b) Computable General Equilibrium (CGE) model approaches; and (iii) the Modified-Cash-Deposit-Ratio (MCDR) method estimates provided by Habibullah, Din, Yusof-Saari and Baharom (2016). Gini coefficient is employed as the measurement for income inequality. The empirical framework integrates real Gross Domestic Product (GDP), tax burden, and urbanization growth as control variables. To evaluate the nexus between the shadow economy and income inequality, the study employs three estimators namely: Ordinary Least Squares (OLS) with robust standard errors, Robust Least Squares (RLS) incorporating M-estimators, and Fully Modified OLS (FMOLS). The analysis conducted are quite robust and comprehensive taking into account both linear and nonlinear dynamics. The empirical evidence predominantly supports a nonlinear relationship, we could see the Kuznet effect, an inverted U-shaped pattern. Implication of the U-Shape is that income inequality initially increases with the expansion of the shadow economy but subsequently decreases once a specific threshold is exceeded. Furthermore, the macroeconomic controls indicate that greater levels of economic development mitigate inequality, whereas higher tax burdens and increased urbanization contribute to its intensification. The analysis also uncovers nonlinear effects in the relationships between inequality and both tax burden and urbanization.en_US
dc.identifier.citationHabibullah, M. S., Din, B. H., Subramaniam, Y., Hamid, B. A., Rahman, M. D. A., & Adzman, A. I. (2026). Does shadow economy widens or narrows the income inequality in Malaysia? Some robust results. International Journal of Economics and Finance Studies, 18(1), 42-69. https://10.34109/ijefs.202618103en_US
dc.identifier.doihttps://10.34109/ijefs.202618103
dc.identifier.issn1309-8055
dc.identifier.urihttps://ikr.inceif.edu.my/handle/INCEIF/4300
dc.languageEnglish
dc.language.isoengen_US
dc.publisherThe Social Sciences Research Societyen_US
dc.sourceSEDONA
dc.subjectIncome inequalityen_US
dc.subjectShadow economyen_US
dc.subjectNonlinearen_US
dc.subjectRobust regressionen_US
dc.subjectMalaysiaen_US
dc.titleDoes shadow economy widens or narrows the income inequality in Malaysia? Some robust resultsen_US
dc.typeJournal Articleen_US
dspace.entity.typePublication
ikr.doctypeScholarly Works
relation.isAuthorOfPublication219f93a8-b38f-400c-981f-6a7162e44a2f
relation.isAuthorOfPublication.latestForDiscovery219f93a8-b38f-400c-981f-6a7162e44a2f
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