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The not so dark side of trust: Does trust increase the size of the shadow economy?

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Author Info
Johanna D'Hernoncourt () (CEESE, Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.)
Pierre-Guillaume Méon () (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels and DULBEA, Université Libre de Bruxelles, Brussels.)

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Abstract

This paper studies the relationship between the size of the shadow economy and generalized trust, on a cross-section of countries, both developed and developing, and finds that it is significantly negative. That relationship is robust to controlling for a large set of economic, policy, and institutional variables, to changing the estimate of the shadow economy and the estimation period, and to controlling for endogeneity. It is independent from trust in institutions. We provide evidence that it is mainly present in the sample of developing countries.

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File URL: http://www.solvay.edu/EN/Research/Bernheim/documents/wp08030.pdf
File Format: application/pdf
File Function: First version, 2008
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Publisher Info
Paper provided by Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB) in its series Working Papers CEB with number 08-030.RS.

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Length: 37 pages
Date of creation: Oct 2008
Date of revision:
Handle: RePEc:sol:wpaper:08-030

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Related research
Keywords: Shadow economy; informal sector; trust.;

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Find related papers by JEL classification:
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
O57 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Comparative Studies of Countries
H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
Z13 - Other Special Topics - - Cultural Economics - - - Social Norms and Social Capital; Social Networks Economic Anthropology

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References listed on IDEAS
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  1. Schneider, Friedrich, 2007. "Shadow Economies and Corruption All Over the World: New Estimates for 145 Countries," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 1(9). [Downloadable!]
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  4. Fehr, Ernst & Fischbacher, Urs & von Rosenbladt, Bernhard & Schupp, Jürgen & Wagner, Gert G., 2003. "A Nation-Wide Laboratory: Examining Trust and Trustworthiness by Integrating Behavioral Experiments into Representative Surveys," IZA Discussion Papers 715, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  5. Gerxhani, Klarita, 2004. "Tax evasion in transition: Outcome of an institutional clash? Testing Feige's conjecture in Albania," European Economic Review, Elsevier, vol. 48(4), pages 729-745, August. [Downloadable!] (restricted)
  6. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The Role of Social Capital in Financial Development," American Economic Review, American Economic Association, vol. 94(3), pages 526-556, June. [Downloadable!]
    Other versions:
  7. 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(1), pages 129-162, December. [Downloadable!] (restricted)
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  9. Sjoerd Beugelsdijk & Henri L.F. de Groot & Anton B.T.M. van Schaik, 2002. "Trust and Economic Growth," Tinbergen Institute Discussion Papers 02-049/3, Tinbergen Institute. [Downloadable!]
  10. Friedrich Schneider, 2004. "Shadow Economies around the World: What do we really know?," IAW Discussion Papers 16, Institut für Angewandte Wirtschaftsforschung (IAW). [Downloadable!]
    Other versions:
  11. Axel Dreher & Friedrich Schneider, 2006. "Corruption and the Shadow Economy: An Empirical Analysis," IZA Discussion Papers 1936, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  12. Benno Torgler & Friedrich Schneider, 2007. "Shadow Economy, Tax Morale, Governance and Institutional Quality: A Panel Analysis," CESifo Working Paper Series CESifo Working Paper No. , CESifo GmbH. [Downloadable!]
    Other versions:
  13. Sapienza, Paola & Toldra Simats, Anna & Zingales, Luigi, 2007. "Understanding Trust," CEPR Discussion Papers 6462, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  14. Marcouiller, Douglas & Young, Leslie, 1995. "The Black Hole of Graft: The Predatory State and the Informal Economy," American Economic Review, American Economic Association, vol. 85(3), pages 630-46, June. [Downloadable!] (restricted)
  15. Niclas Berggren & Henrik Jordahl, 2006. "Free to Trust: Economic Freedom and Social Capital," Kyklos, Blackwell Publishing, vol. 59(2), pages 141-169, 05. [Downloadable!] (restricted)
    Other versions:
  16. Lars P. Feld & Bruno S. Frey, 2006. "Tax Compliance as the Result of a Psychological Tax Contract: The Role of Incentives and Responsive Regulation," CREMA Working Paper Series 2006-10, Center for Research in Economics, Management and the Arts (CREMA). [Downloadable!]
    Other versions:
  17. 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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  19. 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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