In this paper, we have studied institutional and other macro determinants of prevalence of informal dependent employment, as well as informal self-employment in European countries. To our best knowledge, this is the first multi-country study which conducts such an analysis for Europe using direct survey data on work without legal contract rather than proxy measures of the size of informal dependent workforce. Accounting for joint determination of informal wage employment, informal self-employment, and unemployment is another distinctive feature of our analysis.

We have conducted analysis separately for three country groups: Eastern and Southern Europe, Western European and Nordic countries, and Europe at large. Table 10 summarizes the directions of the effects across country groups, two types of informal employment, and specifications. A plus sign in a row titled _X_ and a column titled _T_ for country group _G_ indicates that variable _X_ has a positive and significant effect on the share of informal employment of type _T_ in country group _G_ at least in some (typically, in all) specifications reported in that column, and never has a significant negative effect. Minus sign is interpreted in a similar way<sup>30</sup> . Zero refers to a variable insignificant in every specification (within column). In each column, superscripts indicate alternative specifications; entries without superscripts refer to variables common to all specifications<sup>31</sup> .

Many factors appear to work in the expected way (or at least in the same way when expectations are ambiguous) in all three country groups. Consistently with theoretical predictions, quality of _business environment_ (represented by Business Freedom, Investment Freedom, Trade Freedom, and Monetary Freedom) has a significant negative impact on prevalence of both types of informal employment when other factors, including GDP level and growth, are controlled. Noteworthy, the specific product-market-related factors which appear as significant differ between the two country groups: In Eastern and Southern Europe, these are Investment Freedom and Trade Freedom, whilst in Western and Northern Europe - Business Freedom and Monetary Freedom; when all countries are pooled together, it is Business Freedom which matters.

The share of non-contracted employees is negatively affected by perceived quality of public services (represented by Government Effectiveness, Satisfaction with the Government,

> 30 A sign in parentheses refers to a marginally insignificant effect ( _P_ -values between 0.10 and 0.13).

> 31 Table 10 also provides comparisons with the results of four other studies where the dependent variable is one of the following proxies for informal employment: (i) share of labor force not contributing to the pension system; (ii) share of self-employed in the labor force; (iii) share of workers without a contract or with a temporary contract. The results reviewed in Table 10 refer to: Fialova and O. Schneider (2011) – for a panel (2006-2007) of 25 European countries, using all three proxies;  Perry et al. (2007) and Loayza et al. (2009)  - for cross-sections of 57 to 70 world countries, using proxies (i) and (ii); Loayza and Rigolini (2006) – for a panel (ending in 2004) of 42 world countries and a sub-panel of 18 developing countries, using proxies (i) and (ii).

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