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Poverty and the shadow economy: The role of governmental institutions

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  • Aziz N. Berdiev
  • James W. Saunoris
  • Friedrich Schneider

Abstract

This paper examines the impact of poverty on the size of the shadow economy using cross‐country panel data for over 100 countries for the period 1991–2015. The results show that poverty has a positive and significant effect on the size of the shadow economy. Furthermore, we argue that the quality and size of governmental institutions matter in moderating the impact of poverty on the shadow economy. Considering the interactions between poverty and government quality and size, we find that poverty has the largest effect on the size of the shadow economy when government quality is the lowest and the size of the government is the largest. These results withstand a battery of robustness checks.

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  • Aziz N. Berdiev & James W. Saunoris & Friedrich Schneider, 2020. "Poverty and the shadow economy: The role of governmental institutions," The World Economy, Wiley Blackwell, vol. 43(4), pages 921-947, April.
    • Handle: RePEc:bla:worlde:v:43:y:2020:i:4:p:921-947
    DOI: 10.1111/twec.12917
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    1. Thi Hong Hanh Pham, 2022. "Shadow Economy and Poverty: What Causes What?," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 20(4), pages 861-891, December.
    2. Bashlakova, Volga & Bashlakov, Henadzi, 2021. "The study of the shadow economy in modern conditions: Theory, methodology, practice," The Quarterly Review of Economics and Finance, Elsevier, vol. 81(C), pages 468-480.
    3. Khorana, Sangeeta & Caram, Santiago & Biagetti, Marco, 2021. "Vicious Circle or New Paradigm? Exploring the Impact of Shadow Economy on Labour Market in Latin America and Eurozone," GLO Discussion Paper Series 983, Global Labor Organization (GLO).
    4. Medda, Tiziana & Palmisano, Flaviana & Sacchi, Agnese, 2022. "Informal we stand? The role of social progress around the world," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 660-675.
    5. Owolabi, Adegboyega O. & Berdiev, Aziz N. & Saunoris, James W., 2022. "Is the shadow economy procyclical or countercyclical over the business cycle? International evidence," The Quarterly Review of Economics and Finance, Elsevier, vol. 84(C), pages 257-270.
    6. Ben Atta, Oussama & Chort, Isabelle & Senne, Jean Noël, 2022. "Immigration, integration, and the informal economy in OECD countries," GLO Discussion Paper Series 1197, Global Labor Organization (GLO).
    7. Sena Kimm Gnangnon, 2023. "Effect of the Shadow Economy on Tax Reform in Developing Countries," Economies, MDPI, vol. 11(3), pages 1-49, March.
    8. Isaac Ketu & Arsene Mouongue Kelly & Jules-Eric Tchapchet Tchouto, 2024. "Does economic complexity reduce the size of the shadow economy in African countries?," SN Business & Economics, Springer, vol. 4(1), pages 1-27, January.
    9. Aziz N. Berdiev & James W. Saunoris, 2023. "The case for independence: Does central bank independence curb the spread of the underground economy?," Kyklos, Wiley Blackwell, vol. 76(3), pages 407-435, August.
    10. Paraskevi Koufopoulou & Colin C. Williams & Athanassios Vozikis & Kyriakos Souliotis & Antonios Samprakos, 2021. "Estimating Shadow Economy Size in Greece 2000 - 2018: A Flexible MIMIC Approach," SPOUDAI Journal of Economics and Business, SPOUDAI Journal of Economics and Business, University of Piraeus, vol. 71(3-4), pages 23-47, July-Dece.
    11. Mutascu Mihai & Hegerty Scott W., 2022. "The role of refugees in the underground economy of the European Union," IZA Journal of Development and Migration, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 13(1), pages 1-19, January.
    12. Mohammed Nayel Abu Alfoul & Ibrahim Naser Khatatbeh & Fouad Jamaani, 2022. "What Determines the Shadow Economy? An Extreme Bounds Analysis," Sustainability, MDPI, vol. 14(10), pages 1-22, May.

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