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Beyond the Veil of Ignorance: The Influence of Direct Democracy on the Shadow Economy

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  • Friedrich Schneider
  • Désirée Teobaldelli

Abstract

In this paper we analyze the influence of direct democratic institutions on the size and development of the shadow economies. The framework developed predicts a negative relationship between the degree of direct democracy and the size of the shadow economy. Countries where direct democratic institutions support democratic life are expected to be characterized by a lower informal sector, ceteris paribus. The empirical / econometric investigation of a sample of 56 democracies confirms our core hypothesis and demonstrates that the effect of direct democratic institutions on the shadow economy is negative and quantitatively important; the results are robust and also depend on the interaction of direct democracy with other political institutions, such as district magnitude.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3749.

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Date of creation: 2012
Date of revision:
Handle: RePEc:ces:ceswps:_3749

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Keywords: shadow economy; direct democratic institutions; district magnitude; good governance;

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References

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Citations

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Cited by:
  1. Schneider, Friedrich, 2014. "The Shadow Economy and Shadow Labor Force: A Survey of Recent Developments," IZA Discussion Papers 8278, Institute for the Study of Labor (IZA).
  2. Andreas Buehn & Friedrich Schneider, 2013. "Shadow Economies in highly developed OECD countries: What are the driving forces?," Economics working papers, Department of Economics, Johannes Kepler University Linz, Austria 2013-17, Department of Economics, Johannes Kepler University Linz, Austria.
  3. Friedrich Schneider, 2012. "The Shadow Economy and Tax Evasion: What Do We (Not) Know?," CESifo Forum, Ifo Institute for Economic Research at the University of Munich, Ifo Institute for Economic Research at the University of Munich, vol. 13(2), pages 03-12, 07.
  4. Friedrich Schneider, 2013. "Size and Progression of the Shadow Economies of Turkey and Other OECD Countries from 2003 to 2013; Some New Facts," Ekonomi-tek - International Economics Journal, Turkish Economic Association, Turkish Economic Association, vol. 2(2), pages 83-116, May.
  5. Friedrich Schneider & Andreas Bühn, 2013. "Estimating the Size of the Shadow Economy: Methods, Problems and Open Questions," CESifo Working Paper Series 4448, CESifo Group Munich.
  6. Ceyhun Elgin & Oguz Oztunali, 2013. "Institutions, Informal Economy and Economic Development," Working Papers, Bogazici University, Department of Economics 2013/03, Bogazici University, Department of Economics.

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