Ethnic Divisions and the Size of the Informal Sector
AbstractThis 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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Bibliographic InfoPaper provided by Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics in its series EPRU Working Paper Series with number 03-01.
Length: 21 pages
Date of creation: Jan 2003
Date of revision:
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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, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
- O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
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