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Corruption and the Shadow Economy: A Structural Equation Model Approach

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Author Info
Buehn, Andreas () (Dresden University of Technology)
Schneider, Friedrich () (University of Linz)

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Abstract

The relationship between corruption and the shadow economy is not clear. Theoretically, they either substitute or complement each other – exhibiting either a negative or positive relationship. This paper – using a structural equation model with two latent variables – extracts information on various dimensions of corruption and the shadow economy to contribute to the debate on their relationship. It presents empirical evidence of a positive relationship between the shadow economy and corruption. The results show that the shadow economy influences corruption more than corruption influences 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 4182.

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Length: 41 pages
Date of creation: May 2009
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Handle: RePEc:iza:izadps:dp4182

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Related research
Keywords: shadow economy; corruption; SEM models;

Find related papers by JEL classification:
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
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion

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References listed on IDEAS
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    Other versions:
  5. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August. [Downloadable!] (restricted)
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    Other versions:
  8. Easterly, William & Levine, Ross, 1997. "Africa's Growth Tragedy: Policies and Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1203-50, November.
    Other versions:
  9. Van Rijckeghem, Caroline & Weder, Beatrice, 2001. "Bureaucratic corruption and the rate of temptation: do wages in the civil service affect corruption, and by how much?," Journal of Development Economics, Elsevier, vol. 65(2), pages 307-331, August. [Downloadable!] (restricted)
  10. Roberto Dell´Anno, 2007. "The shadow economy in Portugal: An analysis with the MIMIC approach," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 253-277, November. [Downloadable!] (restricted)
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  14. Jay Pil Choi & Marcel Thum, 2005. "Corruption And The Shadow Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 817-836, 08. [Downloadable!] (restricted)
    Other versions:
  15. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June. [Downloadable!] (restricted)
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