Corruption And The Shadow Economy
AbstractThis article develops a simple framework for analyzing the links between corruption and the unofficial economy and their implications for the official economy. In a model of self-selection with heterogeneous entrepreneurs, we show that the entrepreneurs' option to flee to the underground economy constrains a corrupt official's ability to introduce distortions to the economy for private gains. The unofficial economy thus mitigates government-induced distortions and, as a result, leads to enhanced economic activities in the official sector. In this sense, the presence of the unofficial sector acts as a complement to the official economy instead of as a substitute. Copyright 2005 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.
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Bibliographic InfoArticle provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.
Volume (Year): 46 (2005)
Issue (Month): 3 (08)
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Other versions of this item:
- Choi, Jay Pil & Thum, Marcel, 2003. "Corruption and the shadow economy," Dresden Discussion Paper Series in Economics 02/03, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
- Jay Pil Choi & Marcel Thum, 2002. "Corruption and the Shadow Economy," CESifo Working Paper Series 633, CESifo Group Munich.
- D9 - Microeconomics - - Intertemporal Choice
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- K4 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior
- L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
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