In this paper, we investigate on the determinants of the size of shadow economy (SE) in Latin America. While the analysis of economic causes of SE has been extensively studied in literature, here we offer a wider prospective. In addition to overall economic development, unemployment rate, and marginal tax rate, we examine the relationships of SE with institutional indicators and income inequality. We find empirical evidence to state that the institutional background is essential to explain the size of SE; income inequality is weakly correlated with SE; the level of GDP is correlated positively with SE as percentage of official economy.
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Paper provided by Dipartimento di Scienze Economiche, Matematiche e Statistiche, Universita' di Foggia in its series Quaderni DSEMS with number
24-2008.
Find related papers by JEL classification: O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law O54 - Economic Development, Technological Change, and Growth - - Economywide Country Studies - - - Latin America; Caribbean N16 - Economic History - - Macroeconomics and Monetary Economics; Growth and Fluctuations - - - Latin America; Caribbean
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