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Dodging the Grabbing Hand: The Determinants of Unofficial Activity in 69

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Author Info

  • Eric Friedman

    ()
    (Rutgers University)

  • Simon Johnson

    ()
    (MIT)

  • Daniel Kaufmann

    (The World Bank)

  • Pablo Zoido-Lobaton

    (The World Bank)

Abstract

Across 69 countries, higher tax rates are associated with less unofficial activity as a percent of GDP but corruption is associated with more unofficial activity. Entrepreneurs go underground not to avoid official taxes but to reduce the burden of bureaucracy and corruption. Dodging the "Grabbing Hand" in this way reduces tax revenues as a percent of both official and total GDP. As a result, corrupt governments become small governments and only relatively uncorrupt governments can sustain high tax rates.

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Bibliographic Info

Paper provided by Rutgers University, Department of Economics in its series Departmental Working Papers with number 199921.

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Date of creation: 12 Oct 1999
Date of revision:
Handle: RePEc:rut:rutres:199921

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Related research

Keywords: corporate governance; corruption; tax rates; unofficial activity;

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Citations

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Cited by:
  1. Friedrich Schneider & Dominik Enste, 2000. "Shadow Economies Around the World - Size, Causes, and Consequences," IMF Working Papers 00/26, International Monetary Fund.
  2. Sabine Bernabe, 2002. "Informal Employment in Countries in Transition: A conceptual framework," CASE Papers case56, Centre for Analysis of Social Exclusion, LSE.
  3. Sabine Bernabe, 2002. "Informal employment in countries in transition: a conceptual framework," LSE Research Online Documents on Economics 6389, London School of Economics and Political Science, LSE Library.
  4. Mark E. Schaffer & Gerard Turley, 2001. "Effective versus statutory taxation: measuring effective tax administration in transition economies," Working Papers 62, European Bank for Reconstruction and Development, Office of the Chief Economist.
  5. Choi, Jay Pil & Thum, Marcel, 2003. "Corruption and the shadow economy," Dresden Discussion Paper Series in Economics 02/03, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
  6. Friedrich Schneider, 2003. "The Development of the Shadow Economies and Shadow Labour Force of 21 OECD and 22 Transition Countries," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 1(1), pages 17-23, 02.
  7. M. Ali Kemal, 2007. "A Fresh Assessment of the Underground Economy and Tax Evasion in Pakistan: Causes, Consequences, and Linkages with the Formal Economy," PIDE-Working Papers 2007:13, Pakistan Institute of Development Economics.
  8. Friedrich Schneider, 2000. "Illegal activities, but still values added ones (?): size, causes, and measurement of the shadow economies all over the world," Economics working papers 2000-10, Department of Economics, Johannes Kepler University Linz, Austria.
  9. Loayza, Norman V. & Rigolini, Jamele, 2006. "Informality trends and cycles," Policy Research Working Paper Series 4078, The World Bank.
  10. Reyes Calderon Cuadrado, 2005. "Corruption: A Corporate Perspective," Faculty Working Papers 11/05, School of Economics and Business Administration, University of Navarra.
  11. Schneider, Friedrich, 2002. "The Size and Development of the Shadow Economies of 22 Transition and 21 OECD Countries," IZA Discussion Papers 514, Institute for the Study of Labor (IZA).
  12. Friedrich Schneider & Christina Burger, 2004. "Formal and informal labour markets: Challenges and policy in the Central and Eastern European new EU members and candidate countries," Economics working papers 2004-05, Department of Economics, Johannes Kepler University Linz, Austria.

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