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How do institutions affect corruption and the shadow economy?

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Author Info

  • Axel Dreher

    ()

  • Christos Kotsogiannis

    ()

  • Steve McCorriston

    ()

Abstract

This paper analyzes a simple model that captures the relationship between institutional quality, the shadow economy and corruption. It shows that an improvement in institutional quality reduces the shadow economy and a?ects the corruption market. The exact relationship between corruption and institutional quality is, however, ambiguous and depends on the relative e?ectiveness of the institutional quality in the shadow and corruption markets. The predictions of the model are empirically tested—by means of Structural Equation Modelling that treats the shadow economy and the corruption market as latent variables—using data from OECD countries. The results show that an improvement in institutional quality reduces the shadow economy directly and corruption both directly and indirectly (through its e?ect on the shadow market).

(This abstract was borrowed from another version of this item.)

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File URL: http://hdl.handle.net/10.1007/s10797-008-9089-5
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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 16 (2009)
Issue (Month): 6 (December)
Pages: 773-796

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Handle: RePEc:kap:itaxpf:v:16:y:2009:i:6:p:773-796

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Web page: http://www.springerlink.com/link.asp?id=102915

Related research

Keywords: Corruption; Shadow economies; Institutional quality; H39; C31; K49;

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References

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  1. Jay Pil Choi & Marcel Thum, 2002. "Corruption and the Shadow Economy," CESifo Working Paper Series 633, CESifo Group Munich.
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