Unveiling the environmental impact of total energy-based shadow economy in high-income EU countries

Research on shadow economy has become a major concern for policymakers and scholars in recent years. This study offers valuable insights by examining the impact of the total energy-based shadow economy on CO 2 emissions in high-income EU countries from 2001Q1 to 2021Q4. To the best of the investigators' knowledge, this is the first study to explore this relationship across EU nations and focusing on total energy-based shadow economy. The research employs a range of quantile-based methodologies, including quantile-on-quantile regression, cross-quantile correlation, and quantile-on-quantile Granger causality. The study revealed a nonlinear impact of the shadow economy on CO 2 across countries. In Austria, Belgium, Germany, Finland, France, and Italy, higher shadow economy levels led to significant emissions increases, indicating its role in environmental degradation. Denmark, Luxembourg, and Netherlands showed varied impacts, with emissions rising at higher shadow economy levels, while Sweden exhibited a diminishing impact on emissions. Policymakers should consider tailored regulatory frameworks to mitigate environmental degradation associated with larger shadow economies in Austria, Belgium, Germany, Finland, France, and Italy while addressing varying impacts in Denmark, Luxembourg, and Netherlands and leveraging proactive measures observed in Sweden.