Hidden ties: How kinship shapes the global shadow economy

This study examines how kinship systems shape the size of the shadow economy—economic activities deliberately hidden from official oversight to evade taxes and regulations. We hypothesize that stronger kinship ties foster larger shadow economies by promoting intragroup cooperation that facilitates evasion and by weakening generalized morality. Using a cross-country dataset, we find a robust positive relationship between historical kinship intensity and the size of the contemporary shadow economy when controlling for a range of geographic, historical, and institutional factors. To address endogeneity concerns, we use the historical prevalence of infectious diseases and the spread of Christianity as instrumental variables for kinship intensity. The results remain consistent across alternative measures and specifications. Our findings underscore the importance of cultural factors—specifically kinship structures—in shaping informal economic behavior, offering new insights into the fundamental drivers of the shadow economy.