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Shadow Economy, Tax Morale, Governance and Institutional Quality: A Panel Analysis

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Author Info
Benno Torgler () (University of California, Berkeley and CREMA)
Friedrich Schneider () (Johannes Kepler University of Linz, CREMA and IZA)

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Abstract

This paper analyses how governance or institutional quality and tax morale affect the shadow economy, using an international country panel and also within country data. The literature strongly emphasizes the quantitative importance of these factors to understand the level and changes of shadow economy. However, the limited number of investigations use crosssectional country data with a relatively small number of observations, and hardly any paper has investigated tax morale and provides evidence using within country data. Using more than 25 proxies that measure governance and institutional quality we find strong support that its increase leads to a smaller shadow economy. Moreover, an increase in tax morale reduces the size of the shadow economy.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 2563.

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Length: 56 pages
Date of creation: Jan 2007
Date of revision:
Handle: RePEc:iza:izadps:dp2563

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Related research
Keywords: shadow economy; tax morale; governance quality; government intervention; corruption;

Other versions of this item:

Find related papers by JEL classification:
D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
H2 - Public Economics - - Taxation, Subsidies, and Revenue
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
O5 - Economic Development, Technological Change, and Growth - - Economywide Country Studies

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References listed on IDEAS
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.:
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  4. James Alm & Jorge Martinez-Vazquez & Benno Torgler, 2005. "Russian Attitudes Toward Paying Taxes – Before, During, and After the Transition," CREMA Working Paper Series 2005-27, Center for Research in Economics, Management and the Arts (CREMA). [Downloadable!]
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  5. Alberto Alesina & Arnaud Devleeschauwer & William Easterly & Sergio Kurlat & Romain Wacziarg, 2002. "Fractionalization," Harvard Institute of Economic Research Working Papers 1959, Harvard - Institute of Economic Research. [Downloadable!]
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Full references

Cited by:
(explanations, 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.)

  1. Bird, Richard M. & Martinez-Vazquez, Jorge & Torgler, Benno, 2008. "Tax Effort in Developing Countries and High Income Countries: The Impact of Corruption, Voice and Accountability," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 38(1), pages 55-71, March. [Downloadable!]
  2. Benno Torgler & Friedrich Schneider & Christoph A. Schaltegger, 2009. "Local Autonomy, Tax Morale and the Shadow Economy," School of Economics and Finance Discussion Papers and Working Papers Series 243, School of Economics and Finance, Queensland University of Technology. [Downloadable!]
    Other versions:
  3. Johanna D'Hernoncourt & Pierre-Guillaume Méon, 2008. "The not so dark side of trust: Does trust increase the size of the shadow economy?," Working Papers CEB 08-030.RS, Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB). [Downloadable!]
  4. Schneider, Friedrich, 2008. "The Shadow Economy in Germany - A Blessing or a Curse for the Official Economy?," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 38(1), pages 89-111, March. [Downloadable!]
  5. Jorge Martinez-Vazquez & Benno Torgler, 2007. "The Evolution of Tax Morale in Modern Spain," School of Economics and Finance Discussion Papers and Working Papers Series 224, School of Economics and Finance, Queensland University of Technology, revised 12 Aug 2008. [Downloadable!]
    Other versions:
  6. Torgler, Benno & Demir, Ihsan C. & Macintyre, Alison & Schaffner, Markus, 2008. "Causes and Consequences of Tax Morale: An Empirical Investigation," Economic Analysis and Policy (EAP), Queensland University of Technology (QUT), School of Economics and Finance, vol. 38(2), pages 313-339, September. [Downloadable!]
    Other versions:
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