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Corruption, Centralization, and the Shadow Economy

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Author Info

  • Luciana Echazu

    ()
    (Department of Economics, Clarkson University, Potsdam, NY 13699, USA)

  • Pinaki Bose

    ()
    (Department of Economics, Fogelman College of Business and Economics, University of Memphis, Memphis, TN 38152, USA)

Abstract

In their pioneering work on corruption, Shleifer and Vishny (1993) find that a centralized bureaucracy results in lower bribes. Our paper extends the analysis to economies with formal and informal sectors. When corrupt officials operate in both sectors, bureaucratic centralization is beneficial when confined to the formal sector; however, we show that crosssector centralization can result in higher bribes and lower welfare. Furthermore, contrary to Choi and Thum (2005), we demonstrate that, depending on the organization of the bureaucracy and the productivity of the informal sector, the presence of the shadow economy may have adverse effects on corruption and welfare.

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Bibliographic Info

Article provided by Southern Economic Association in its journal Southern Economic Journal.

Volume (Year): 75 (2008)
Issue (Month): 2 (October)
Pages: 524-537

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Handle: RePEc:sej:ancoec:v:75:2:y:2008:p:524-537

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Web page: http://www.southerneconomic.org/
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Cited by:
  1. repec:pdn:wpaper:79 is not listed on IDEAS
  2. Schneider, Friedrich G. & Buehn, Andreas, 2007. "Shadow economies and corruption all over the world: revised estimates for 120 countries," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 1(9 (Versio), pages 1-53.
  3. repec:pdn:wpaper:70 is not listed on IDEAS
  4. Eugen Dimant, 2013. "The Nature of Corruption - An Interdisciplinary Perspective," Working Papers CIE 70, University of Paderborn, CIE Center for International Economics.
  5. Roberto Dell'Anno & Désirée Teobaldelli, 2012. "Keeping both Corruption and the Shadow Economy in Check: The Role of Decentralization," Working Papers 1213, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2012.

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