Informal we stand? The role of social progress around the world

Social progress has increased around the world. Can it be considered a strategic tool to shrink the informal sector? Using data for 156 countries over the last 30 years, we find that social progress - measured though the Human Development Index (HDI) - exerts a strong negative impact on informal economy (IE). However, this impact diminishes for higher levels of social progress, depicting a non-linear relationship, and it is mainly driven by the income and health components of HDI, whereas the education component does not play a significant role. Among the mechanisms possibly affecting the investigated relationship, we focus on political corruption and the spread of internet as opposite factors at work. While the ‘virtuous’ effect of social progress on IE holds even in presence of high political corruption, it vanishes when the internet diffusion increases.