Shadow Economy, Rent-Seeking Activities and the Perils of Reinforcement of the Rule of Law
AbstractAn economy is considered where a possibility to seek rents (a particular case of this activity is corruption) exists along with production. A producer is able to hide part of his output from both bribery and taxation. It is shown that the presence of a shadow sector has di?erent e?ects in economies with high and low rent-seeking. As expected, in the economy with low corruption the direct law enforcement is bene- ficial for growth, and reduces the shadow sector. However, in the highly corrupt economy, combating the shadow economy reduces output and increases corruption, while combating corruption reduces the shadow economy.
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Bibliographic InfoPaper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 2003-578.
Length: 23 pages
Date of creation: 12 Mar 2003
Date of revision:
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corruption; rent-seeking; shadow economy; law enforcement; transition;
Other versions of this item:
- Ekaterina VOSTROKNUTOVA, 2003. "Shadow Economy, Rent-Seeking Activities and the Perils of Reinforcement of the Rule of Law," Economics Working Papers ECO2003/09, European University Institute.
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
- H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2003-11-23 (All new papers)
- NEP-DEV-2003-11-23 (Development)
- NEP-LAW-2003-11-23 (Law & Economics)
- NEP-PBE-2003-11-23 (Public Economics)
- NEP-TRA-2003-11-23 (Transition Economics)
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