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Corruption and the shadow economy: an empirical analysis

  • Axel Dreher

    ()

  • Friedrich Schneider

    ()

This paper analyzes the influence of the shadow economy on corruption and vice versa. We hypothesize that corruption and shadow economy are substitutes in high income countries while they are complements in low income countries. The hypotheses are tested for a crosssection of 120 countries and a panel of 70 countries for the period 1994-2002. Our results show that the shadow economy reduces corruption in high income countries, but increases corruption in low income countries. We also find that stricter regulations increase both corruption and the shadow economy.

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File URL: http://hdl.handle.net/10.1007/s11127-009-9513-0
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Article provided by Springer in its journal Public Choice.

Volume (Year): 144 (2010)
Issue (Month): 1 (July)
Pages: 215-238

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Handle: RePEc:kap:pubcho:v:144:y:2010:i:1:p:215-238
Contact details of provider: Web page: http://www.springerlink.com/link.asp?id=100332

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  1. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1999. "Corruption, public finances, and the unofficial economy," Policy Research Working Paper Series 2169, The World Bank.
  2. Douglas Hibbs & Violeta Piculescu, 2005. "Institutions, Corruption and Tax Evasion in the Unofficial Economy," Public Economics 0508003, EconWPA.
  3. Axel Dreher & Christos Kotsogiannis & Steve McCorriston, 2007. "Corruption Around the World: Evidence from a Structural Model," Discussion Papers 0702, Exeter University, Department of Economics.
  4. Loayza, Norman V., 1996. "The economics of the informal sector: a simple model and some empirical evidence from Latin America," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 45(1), pages 129-162, December.
  5. Andrei Shleifer & Robert W. Vishny, 1998. "The Quality of Government," Harvard Institute of Economic Research Working Papers 1847, Harvard - Institute of Economic Research.
  6. Axel Dreher & Christos Kotsogiannis & Steve McCorriston, 2009. "How do institutions affect corruption and the shadow economy?," International Tax and Public Finance, Springer, vol. 16(6), pages 773-796, December.
  7. Djankov, Simeon & La Porta, Rafael & Shleifer, Andrei & Lopez de Silanes, Florencio, 2001. "The regulation of entry," Policy Research Working Paper Series 2661, The World Bank.
  8. Pranab Bardhan, 1997. "Corruption and Development: A Review of Issues," Journal of Economic Literature, American Economic Association, vol. 35(3), pages 1320-1346, September.
  9. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Juan Botero, 2003. "The Regulation of Labor," NBER Working Papers 9756, National Bureau of Economic Research, Inc.
  10. Jay Pil Choi & Marcel Thum, 2002. "Corruption and the Shadow Economy," CESifo Working Paper Series 633, CESifo Group Munich.
  11. 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.
  12. Aidt, T.S. & Gassebner, M., 2007. "Do Autocratic States Trade Less?," Cambridge Working Papers in Economics 0742, Faculty of Economics, University of Cambridge.
  13. Naci Mocan, 2008. "What Determines Corruption? International Evidence From Microdata," Economic Inquiry, Western Economic Association International, vol. 46(4), pages 493-510, October.
  14. Pierre-Guillaume Méon & Khalid Sekkat, 2004. "Does the Quality of Institutions Limit the MENA's Integration in the World Economy?," The World Economy, Wiley Blackwell, vol. 27(9), pages 1475-1498, 09.
  15. Pierre-Guillaume Méon & Khalid Sekkat, 2005. "Does corruption grease or sand the wheels of growth?," ULB Institutional Repository 2013/7364, ULB -- Universite Libre de Bruxelles.
  16. Hindriks, Jean & Keen, Michael & Muthoo, Abhinay, 1999. "Corruption, extortion and evasion," Journal of Public Economics, Elsevier, vol. 74(3), pages 395-430, December.
  17. Johanna D'Hernoncourt & Pierre-Guillaume Méon, 2012. "The not so dark side of trust: Does trust increase the size of the shadow economy?," ULB Institutional Repository 2013/98287, ULB -- Universite Libre de Bruxelles.
  18. Lars Siemers & Axel Dreher, 2005. "The Intriguing Nexus between Corruption and Capital Account Restrictions," RWI Discussion Papers 0035, Rheinisch-Westfälisches Institut für Wirtschaftsforschung.
  19. Hans Pitlik & Björn Frank & Mathias Firchow, 2010. "The demand for transparency: An empirical note," The Review of International Organizations, Springer, vol. 5(2), pages 177-195, June.
  20. Alesina, Alberto & Devleeschauwer, Arnaud & Wacziarg, Romain & Kurlat, Sergio & Easterly, William, 2003. "Fractionalization," Scholarly Articles 4553003, Harvard University Department of Economics.
  21. Friedman, Eric & Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 2000. "Dodging the grabbing hand: the determinants of unofficial activity in 69 countries," Journal of Public Economics, Elsevier, vol. 76(3), pages 459-493, June.
  22. Klarita G�rxhani, 2004. "The Informal Sector in Developed and Less Developed Countries: A Literature Survey," Public Choice, Springer, vol. 120(3_4), pages 267-300, 09.
  23. Simon Johnson & Daniel Kaufman & Andrei Shleifer, 1997. "The Unofficial Economy in Transition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 159-240.
  24. Pierre-Guillaume Méon & Khalid Sekkat, 2004. "Does the quality of institutions limit MENA integration in the world economy?," ULB Institutional Repository 2013/7360, ULB -- Universite Libre de Bruxelles.
  25. Dominik H. Enste & Friedrich Schneider, 2000. "Shadow Economies: Size, Causes, and Consequences," Journal of Economic Literature, American Economic Association, vol. 38(1), pages 77-114, March.
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