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Beyond the Veil of Ignorance: The Influence of Direct Democracy on the Shadow Economy

  • Friedrich Schneider
  • Désirée Teobaldelli

In this paper we analyze the influence of direct democratic institutions on the size and development of the shadow economies. The framework developed predicts a negative relationship between the degree of direct democracy and the size of the shadow economy. Countries where direct democratic institutions support democratic life are expected to be characterized by a lower informal sector, ceteris paribus. The empirical / econometric investigation of a sample of 56 democracies confirms our core hypothesis and demonstrates that the effect of direct democratic institutions on the shadow economy is negative and quantitatively important; the results are robust and also depend on the interaction of direct democracy with other political institutions, such as district magnitude.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2012/wp-cesifo-2012-02/cesifo1_wp3749.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3749.

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Date of creation: 2012
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Handle: RePEc:ces:ceswps:_3749
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