widespread corruption at the public administration system in new EU member countries pushes private entrepreneurs out of the official economy and there might exist an inertia, preventing functioning of the traditional mechanisms prevailing in the old European group.

Taking into account the potentially different development in NMS countries before 2004 (i.e. the year of accession of ten of the NMS to the EU) connected with the pre-accession preparations and limiting our estimations to the development after 2004 only does not alter our results substantially. Also, limiting our estimations to the group of old EU member countries only in case of S1 and old Europe and NMS group in case of S2 and S3 does not affect our results or explanation power of the model significantly (with exception of variable control of corruption as described above). To examine the potential differences in the role of explanatory variables between the total country sample and old European countries subsample we applied modified Chow tests as described above. The tests’ results did not reject the hypothesis of stability of regression coefficients between these two groups for all three samples on 5% significance level. This outcome, however, is rather inconclusive and does not allow for evaluating the behavior of these two groups of countries as similar.

**_Table 3. Results of Model 1 – dependent variable SHEC_**

||S1 – Mo|del 1.1||S2 – Mod|el 1.2|||S3 – Mo|del 1.3|||
|---|---|---|---|---|---|---|---|---|---|---|---|
||Total|Old Europe|Total|<br>Old Eur|ope|NMS|Total|Old Eur|ope|NMS||
|EPL|0.3401 ***|0.7095 ***|728.5182|*** 500.3671|***|955.4512 ***|3.9660 ***|1.1153||0.0826|***|
|MW|-0.0239|-0.0590|-1.1830|***<br>-0.1684||-2.4011 ***|-0.2811|0.1267||7.5946||
|TU|-0.0222 *|-0.0276|||||0.0653 *|0.1323|***|1.0378|***|
|TAX|0.0130|0.0238|-0.4076|***<br>0.1910||-0.2334 ***|-0.1231 **|0.0244||-0.3370||
|LMPA|-2.0053 **|-1.4154|28.8079|*<br>95.7827|***|124.6775 ***|15.8518|40.2333||87.8255|***|
|LMPP|1.3975 *|0.9981|-15.2501|**<br>-35.8744|***|9.0014|-11.4617|-14.6066||-197.9803|**|
|lnGDPPC|-6.6175 ***|-5.8683 ***|-7.0184|***<br>-9.9472|***|-19.5301 ***|-7.2459 ***|-9.2686|***|-8.6823|**|
|FISF|0.0094 **|0.0072|-0.2183|***<br>0.1391||-0.1407 ***|-0.0604|0.1096||-0.0240||
|BUSF|-0.0006|-0.0054|0.1713|***<br>0.1109||0.0585|0.0833|-0.0218||0.1114||
|CORR|-0.0596|-0.2299|-10.3114|***<br>-10.2124|***|3.8823 **|-5.9614 ***|-5.2542|***|11.9909|***|
|REGQUAL|-0.2685 *|-0.3964 *|6.6377|*<br>6.6252||6.5757 ***|3.9643|-2.6378||-17.9526|***|
|constant|40.2595 ***|37.8721 ***|51.6638|***<br>24.4622|***|72.2901 ***|38.1481 ***|48.5760|***|45.7466|***|
|R sq. Within|0.8573|0.7718||||||||||
|R sq. Between|0.2783|0.2774||||||||||
|R sq.|0.2823|0.2791|0.8181|<br>0.8847||0.9609|0.8103|0.8896||0.8558||
|N|152|120|56|<br>32||24|49|31||18||
|groups|19|15||||||||||
|Method|RE|RE|POOLED<br>2SLS|IV<br> <br>POOLE<br>2SLS|D IV<br>|POOLED IV<br>2SLS|POOLED IV<br>2SLS|POOLE<br>2SLS|D IV<br>|POOLE<br>2SLS|D IV<br>|
|Wald test Chi<sup>2</sup><br>statisticsp-value|0.0000|0.0000|0.0000|<br>0.0000||0.0000|0.0000|0.0000||0.0000||
|Chow test F<br>statisticsp-value|0.76|52||0.234|8|||0.32|44|||

_Note: *** significant at 1% level, ** significant at 5% level, * significant at 10% level. RE - random effects estimation procedure, POOLED IV 2SLS - pooled two stage least squares procedure with instrumental variables on panel data; robust standard errors utilized. The detailed description of all the models applied in our analyses is given in Annex 4._ _Source: OECD, Eurostat, World Bank, Heritage Foundation, IZA, own calculations._

# _<u>Model 2 – Share of non-contributing labor force</u>_

Estimation of Model 2 using the share of labor force not contributing to the pension system as dependent variable for samples S2 and S3 (there is not enough data to estimate the model on 21