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Ethnic Divisions and the Size of the Informal Sector

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Author Info
David Dreyer Lassen (Economic Policy Research Unit, University of Copenhagen)

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Abstract

This paper investigates the relationship between ethnic fragmentation and the size of the informal economy. Recent experimental and empirical research links, in turn, ethnicity and trust, and trust and tax compliance. In addition, recent empirical studies have identified an unwillingness to contribute to public goods benefiting other ethnic groups. Combining these insights, we argue that increasing ethnic fractionalization decreases voluntary tax compliance, and present empirical evidence at the macro level in a cross-section of more than fifty countries, that more ethnically fragmented societies have significantly larger informal sectors.

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Paper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics (formerly Institute of Economics) in its series EPRU Working Paper Series with number 03-01.

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Length: 21 pages
Date of creation: Jan 2003
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Handle: RePEc:kud:epruwp:03-01

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Related research
Keywords: informal sector ethnic fragmentation voluntary tax compliance

Find related papers by JEL classification:
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities and Races; Non-labor Discrimination
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

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References listed on IDEAS
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  2. Lederman, Daniel & Loayza, Norman & Reis Soares, Rodrigo, 2001. "Accountability and corruption : political institutions matter," Policy Research Working Paper Series 2708, The World Bank. [Downloadable!]
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  4. Edward Miguel, 2001. "Ethnic Diversity and School Funding in Kenya," HEW 0012001, EconWPA. [Downloadable!]
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  7. Alberto Alesina & Eliana La Ferrara, 2000. "Participation In Heterogeneous Communities," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 847-904, August. [Downloadable!] (restricted)
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  8. 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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  9. Edward Miguel, 2006. "Ethnic Diversity and School Funding in Kenya," Center for International and Development Economics Research, Working Paper Series 1002, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
  10. Edward Miguel., 2001. "Ethnic Diversity and School Funding in Kenya," Center for International and Development Economics Research (CIDER) Working Papers C01-119, University of California at Berkeley. [Downloadable!]
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  15. Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45, pages 129-162, December. [Downloadable!] (restricted)
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  20. Gary S. Becker, 1968. "Crime and Punishment: An Economic Approach," Journal of Political Economy, University of Chicago Press, vol. 76, pages 169. [Downloadable!] (restricted)
  21. repec:wop:stanec:98007 is not listed on IDEAS
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  25. Alesina, Alberto & Baqir, Reza & Easterly, William, 1999. "Public goods and ethnic divisions," Policy Research Working Paper Series 2108, The World Bank. [Downloadable!]
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  28. Friedrich Schneider & Dominik H. Enste, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March. [Downloadable!] (restricted)
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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. Mwangi S. Kimenyi, 2003. "Ethnicity, Governance and the Provision of Public Goods," Working papers 2003-49, University of Connecticut, Department of Economics. [Downloadable!]
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