Inclusive Growth, Institutions, and the Underground Economy
AbstractWorldwide protests against the perceived lack of economic opportunity and failure of governance have refocused attention on the need for inclusive growth and strong institutions. In developing countries, large informal economies limit state capacity to deliver governance and strong institutions, which in turn discourages participation in and expansion of the formal economy. This paper analyzes the determinants of the underground economy, with particular emphasis on the role of institutions and the rule of law. We find that when businesses are faced with onerous regulation, inconsistent enforcement and corruption, they have an incentive to hide their activities in the underground economy. Empirical analysis suggests that institutions are a more important determinant of the size of the underground economy than tax rates.
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Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 12/47.
Date of creation: 01 Feb 2012
Date of revision:
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Postal: International Monetary Fund, Washington, DC USA
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-03-21 (All new papers)
- NEP-CIS-2012-03-21 (Confederation of Independent States)
- NEP-DEV-2012-03-21 (Development)
- NEP-IUE-2012-03-21 (Informal & Underground Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Friedrich Schneider & Andreas Buehn & Claudio Montenegro, 2010. "New Estimates for the Shadow Economies all over the World," International Economic Journal, Taylor & Francis Journals, vol. 24(4), pages 443-461.
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