The Changing Nature of the OECD Shadow Economy
AbstractAs recently suggested, the shadow economy and its determinants (taxation, regulations, corruption, etc.) are linked such that just two stable equilibria are possible. In the good one there is a small hidden sector, large fiscal revenues and honest/appreciated institutions. The other (bad) equilibrium is quite the opposite. Our paper examines the links between these variables in relatively uncorrupt systems. Unlike the mainstream literature, we suggest that a continuum of SE equilibrium rates can emerge and that taxation and underground activities can be positively correlated. Empirical evidence for OECD countries broadly supports the model.
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Bibliographic InfoPaper provided by ISTAT - Italian National Institute of Statistics - (Rome, ITALY) in its series ISAE Working Papers with number 81.
Length: 34 pages
Date of creation: Apr 2007
Date of revision:
shadow economy; multiple equilibria; taxation; rule of law.;
Other versions of this item:
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-04-21 (All new papers)
- NEP-LAW-2007-04-21 (Law & Economics)
- NEP-PBE-2007-04-21 (Public Economics)
- NEP-REG-2007-04-21 (Regulation)
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