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Corruption, Centralization, and the Shadow Economy

Author

Listed:
  • Luciana Echazu

    () (Department of Economics, Clarkson University, Potsdam, NY 13699, USA)

  • Pinaki Bose

    () (Department of Economics, Fogelman College of Business and Economics, University of Memphis, Memphis, TN 38152, USA)

Abstract

In their pioneering work on corruption, Shleifer and Vishny (1993) find that a centralized bureaucracy results in lower bribes. Our paper extends the analysis to economies with formal and informal sectors. When corrupt officials operate in both sectors, bureaucratic centralization is beneficial when confined to the formal sector; however, we show that crosssector centralization can result in higher bribes and lower welfare. Furthermore, contrary to Choi and Thum (2005), we demonstrate that, depending on the organization of the bureaucracy and the productivity of the informal sector, the presence of the shadow economy may have adverse effects on corruption and welfare.

Suggested Citation

  • Luciana Echazu & Pinaki Bose, 2008. "Corruption, Centralization, and the Shadow Economy," Southern Economic Journal, Southern Economic Association, vol. 75(2), pages 524-537, October.
  • Handle: RePEc:sej:ancoec:v:75:2:y:2008:p:524-537
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    Citations

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    Cited by:

    1. repec:pdn:wpaper:70 is not listed on IDEAS
    2. Dimant, Eugen, 2014. "The Antecedents and Effects of Corruption - A Reassessment of Current (Empirical) Findings," MPRA Paper 60947, University Library of Munich, Germany.
    3. Schneider, Friedrich G. & Buehn, Andreas, 2007. "Shadow economies and corruption all over the world: revised estimates for 120 countries," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 1, pages 1-53.
    4. Fred S. McChesney, 2010. "The Economic Analysis of Corruption," Chapters,in: Handbook on the Economics of Crime, chapter 9 Edward Elgar Publishing.
    5. Andrey V. Aistov & Elvina Mukhametova, 2015. "Determinants Of Corruption Perceptions: Transitional Vs. Developed Economies," HSE Working papers WP BRP 89/EC/2015, National Research University Higher School of Economics.
    6. Roberto Dell’Anno & Désirée Teobaldelli, 2015. "Keeping both corruption and the shadow economy in check: the role of decentralization," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 22(1), pages 1-40, February.
    7. Diaby, Aboubacar & Sylwester, Kevin, 2014. "Bureaucratic competition and public corruption: Evidence from transition countries," European Journal of Political Economy, Elsevier, vol. 35(C), pages 75-87.
    8. Axel Dreher & Christos Kotsogiannis & Steve McCorriston, 2011. "The Impact of Institutions on the Shadow Economy and Corruption: A Latent Variables Approach," Chapters,in: Handbook on the Shadow Economy, chapter 13 Edward Elgar Publishing.
    9. Soldatos, Gerasimos T., 2014. "Bureaucracy, Underground Activities, and Fluctuations," MPRA Paper 60858, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • K42 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - Illegal Behavior and the Enforcement of Law

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