1 Galbraith’s Theory of Social Balance and Informal Economy: Evidence from Global Data Forthcoming in Journal of Economic Issues Adem Yavuz Elveren Fitchburg State University, MA, USA aelveren@fitchburgstate.edu Ceyhun Elgin BoğazCçC University, Türkiye ceyhun.elgin@boun.edu.tr Abstract This study applies John Kenneth Galbraith’s theory of social balance to the informal economy. Galbraith highlights the critical need for robust public investments in education, healthcare, infrastructure, and social security to maintain a balance between private and public sectors. The unchecked dominance of private interests, coupled with inadequate public services, exacerbates social inequality and leads to higher informalization. Utilizing global data from 156 countries for 1990–2020, this paper employs panel data methods to examine the relationship between social imbalance and informality. It hypothesizes a U-shaped correlation, where both insufficient and excessive public spending relative to private spending promote informal economic activity. The findings confirm the existence of this relationship, highlighting the importance of achieving an effective social balance to minimize informality, reduce inequality, and promote inclusive economic growth. Keywords: Galbraith, theory of social balance, informal sector, informal economy JEL Classification: B31, E26, H40