column 1 of Table 1 presents the OLS results of the full model explaining the size of the shadow economy resulting from the general-to-specific analysis. In the overall sample,only three variables are significantly correlated with the unofficial sector,at the 1% level. As can be seen, the shadow market shrinks with stronger regulations in the credit market, contradicting our a priori expectation. Government effectiveness reduces the size of the informal sector. This is intuitive: the more effective the government, the greater the benefits of operating in the legal sector. Moreover, the risk of getting caught engaging in illegal activities is greater with more effective governments. Stronger minimum wage regulation also increases the size of the shadow economy. The results also show, surprisingly, that our measures of tax burden are not selected by the general-to-specific analysis. As Hibbs and Piculescu (2005) argue, high tax rates do not necessarily imply large shadow economies, as the incentives to evade taxes and produce in the shadow economy depend on tax rates relative to firm-specific benefits available to firms producing in the official sector.