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The impact of economic freedom on corruption and the shadow economy

In: Handbook of Research on Economic Freedom

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  • Peter Graeff

Abstract

The theoretical framework for considering the impact of economic freedom on corruption and the shadow economy can be traced back to early roots in economic and social theory. In this framework, economic freedom reduces corruption and activities in the shadow economy because it abolishes incentives for such crimes. Empirical studies find a rather robust decreasing effect of economic freedom on corruption and the shadow economy, but only when overall indices of economic freedom are applied. When subcomponents of the overall indices are used in empirical research or when short- and long-term effects are considered, economic freedom can lead to an increase in such crimes. The measured impact of economic freedom depends on the operationalization and the data. Most empirical results, however, are in accordance with propositions made by economic theories.

Suggested Citation

  • Peter Graeff, 2024. "The impact of economic freedom on corruption and the shadow economy," Chapters, in: Niclas Berggren (ed.), Handbook of Research on Economic Freedom, chapter 25, pages 372-386, Edward Elgar Publishing.
    • Handle: RePEc:elg:eechap:21220_25
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    File URL: https://www.elgaronline.com/doi/10.4337/9781802206159.00035
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    Keywords

    Economics and Finance;

    Statistics

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