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The Influence of Public Institutions on the Shadow Economy: An Empirical Investigation for OECD Countries

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  • Schneider Friedrich

    () (University of Linz)

Abstract

The size and development of the shadow economy of 21 OECD countries is estimated, using the MIMIC estimation procedure. The analysis finds that an increased burden of taxation and social security payments, combined with intensive labor market regulation, quality of state institutions, and tax morale, are the driving forces for the shadow economy. The public institution of federalism has no statistically significant effect on the shadow economy. Finally, on the one side, incentive-oriented policy means are suggested so that any black value added can be transformed into official value added, and on the other side, it is important to have public institutions which work efficiently and act as a constraint for selfish politicians.

Suggested Citation

  • Schneider Friedrich, 2010. "The Influence of Public Institutions on the Shadow Economy: An Empirical Investigation for OECD Countries," Review of Law & Economics, De Gruyter, vol. 6(3), pages 441-468, December.
  • Handle: RePEc:bpj:rlecon:v:6:y:2010:i:3:n:7
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    References listed on IDEAS

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    1. Kirchler, Erich & Maciejovsky, Boris & Schneider, Friedrich, 2003. "Everyday representations of tax avoidance, tax evasion, and tax flight: Do legal differences matter?," Journal of Economic Psychology, Elsevier, vol. 24(4), pages 535-553, August.
    2. Lars P. Feld & Bruno S. Frey, 2002. "Trust breeds trust: How taxpayers are treated," Economics of Governance, Springer, vol. 3(2), pages 87-99, July.
    3. Lars P. Feld & Friedrich Schneider, 2010. "Survey on the Shadow Economy and Undeclared Earnings in OECD Countries," German Economic Review, Verein für Socialpolitik, vol. 11(2), pages 109-149, May.
    4. Colin Williams & Jan Windebank, 2001. "Reconceptualising paid informal exchange: some lessons from English cities," Environment and Planning A, Pion Ltd, London, vol. 33(1), pages 121-140, January.
    5. Dixon, Huw, 1999. "Controversy: On the Use of the 'Hidden Economy' Estimates," Economic Journal, Royal Economic Society, vol. 109(456), pages 335-337, June.
    6. Christopher Bajada & Friedrich Schneider, 2005. "The Shadow Economies Of The Asia‐Pacific," Pacific Economic Review, Wiley Blackwell, vol. 10(3), pages 379-401, October.
    7. Schneider, Friedrich, 2005. "Shadow economies around the world: what do we really know?," European Journal of Political Economy, Elsevier, vol. 21(3), pages 598-642, September.
    8. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobatón, Pablo, 1998. "Corruption, public finances and the unofficial economy," Sede de la CEPAL en Santiago (Estudios e Investigaciones) 34372, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    9. Enrico A. Marcelli & Manuel Pastor & Pascale M. Joassart, 1999. "Estimating the Effects of Informal Economic Activity: Evidence from Los Angeles County," Journal of Economic Issues, Taylor & Francis Journals, vol. 33(3), pages 579-607, September.
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    12. Andreas Buehn & Alexander Karmann & Friedrich Schneider, 2009. "Shadow Economy and Do-it-Yourself Activities: The German Case," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 165(4), pages 701-722, December.
    13. Giles, David E A, 1999. "Measuring the Hidden Economy: Implications for Econometric Modelling," Economic Journal, Royal Economic Society, vol. 109(456), pages 370-380, June.
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    15. Feige, Edgar L, 1994. "The Underground Economy and the Currency Enigma," Public Finance = Finances publiques, , vol. 49(Supplemen), pages 119-136.
    16. Dell'Anno, Roberto, "undated". "Estimating the Shadow Economy in Italy: a Structural Equation Approach," Economics Working Papers 2003-7, Department of Economics and Business Economics, Aarhus University.
    17. Annette Mummert & Friedrich Schneider, 2002. "The German Shadow Economy: Parted in a United Germany?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(3), pages 286-316, July.
    18. Martin Halla & Friedrich G. Schneider, 2005. "Taxes and Benefits: Two Distinct Options to Cheat on the State?," Economics working papers 2005-05, Department of Economics, Johannes Kepler University Linz, Austria.
    19. Thomas, Jim, 1999. "Quantifying the Black Economy: 'Measurement without Theory' Yet Again?," Economic Journal, Royal Economic Society, vol. 109(456), pages 381-389, June.
    20. Christopher Bajada & Friedrich Schneider, 2009. "Unemployment and the Shadow Economy in the oecd," Revue économique, Presses de Sciences-Po, vol. 60(5), pages 1033-1067.
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