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

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  • Johanna D'Hernoncourt
  • Pierre-Guillaume Méon

Abstract

This paper reports a negative relationship between the size of the shadow economy and generalized trust, in a sample of countries, both developed and developing. 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 and from income inequality, and is mainly present in the sample of developing countries. Those findings suggest that the tax compliance effect of trust dominates its role as a substitute for the formal legal system.

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Bibliographic Info

Paper provided by ULB -- Universite Libre de Bruxelles in its series ULB Institutional Repository with number 2013/98287.

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Date of creation: Jan 2012
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Publication status: Published in: Journal of economic behavior & organization (2012) v.81 n° 1,p.97-121
Handle: RePEc:ulb:ulbeco:2013/98287

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Keywords: Shadow economy; informal sector; trust; Shadow economy; Informal sector; Trust;

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Citations

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Cited by:
  1. Axel Dreher & Friedrich G. Schneider, 2006. "Corruption and the shadow economy: An empirical analysis," Economics working papers 2006-03, Department of Economics, Johannes Kepler University Linz, Austria.
  2. Gaetano Lisi & Maurizio Pugno, 2009. "Entrepreneurship and the Hidden Economy: an Extended Matching Model," Working Papers 2009-04, Universita' di Cassino, Dipartimento di Scienze Economiche.
  3. Osterloh, Steffen & Heinemann, Friedrich & Kalb, Alexander, 2013. "Sovereign risk premia: The link between fiscal rules and stability culture," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 80043, Verein für Socialpolitik / German Economic Association.
  4. Tausch, Arno & Heshmati, Almas, 2014. "Testing an EU-Candidate's Place on the Maps of Global Economic, Political and Social Values: The Case of Turkey," IZA Discussion Papers 8163, Institute for the Study of Labor (IZA).
  5. Wahl, Fabian, 2012. "Why it matters what people think: Beliefs, legal origins and the deep roots of trust," FZID Discussion Papers 52-2012, University of Hohenheim, Center for Research on Innovation and Services (FZID).
  6. Buetzer, Sascha & Jordan, Christina & Stracca, Livio, 2013. "Macroeconomic imbalances: a question of trust?," Working Paper Series 1584, European Central Bank.

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