Shadow Economy, Rent-Seeking Activities and the Perils of Reinforcement of the Rule of Law
AbstractAn economy is considered where a possibility to seek rents (a particular case of this activity is corruption) exists along with production. A producer is able to hide part of his output from both bribery and taxation. It is shown that the presence of a shadow sector has different effects in economies with hight and low rent-seeking. As expected, in the economy with low corruption the direct law enforcement is beneficial for growth, and reduces the shadow setor. However, in the highly corrupt economy, combating the shadow economy reduces output and increases corruption, while combating corruption reduces the shadow economy.
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Bibliographic InfoPaper provided by European University Institute in its series Economics Working Papers with number ECO2003/09.
Date of creation: 2003
Date of revision:
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corruption; rent-seeking; shadow economy; law enforcement; transition;
Other versions of this item:
- Ekaterina Vostroknutova, 2003. "Shadow Economy, Rent-Seeking Activities and the Perils of Reinforcement of the Rule of Law," William Davidson Institute Working Papers Series 2003-578, William Davidson Institute at the University of Michigan.
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
This paper has been announced in the following NEP Reports:
- NEP-ENT-2003-07-13 (Entrepreneurship)
- NEP-LAW-2003-07-13 (Law & Economics)
- NEP-TRA-2003-07-13 (Transition Economics)
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