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Informality, Corruption, and Inequality

  • Mishra, Ajit
  • Ray, Ranjan

The paper looks at the determinants of the size of the informal sector. We argue that corruption and informality complement each other and are jointly determined by various market and non-market variables. Our theoretical model as well empirical exercises focus on wealth and income inequality as a key determinant. High degree of inequality leads to bigger informal sector. We offer several plausible channels through inequality can impact the size of the informal sector.

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File URL: http://opus.bath.ac.uk/22127/1/1310.pdf
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Paper provided by University of Bath, Department of Economics in its series Department of Economics Working Papers with number 22127.

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Date of creation: Dec 2010
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Handle: RePEc:eid:wpaper:22127
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  1. Jay Pil Choi & Marcel Thum, 2002. "Corruption and the Shadow Economy," CESifo Working Paper Series 633, CESifo Group Munich.
  2. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andre Shleifer, 2000. "The Regulation of Entry," Harvard Institute of Economic Research Working Papers 1904, Harvard - Institute of Economic Research.
  3. Chong, Alberto & Gradstein, Mark, 2006. "Inequality and Informality," CEPR Discussion Papers 5545, C.E.P.R. Discussion Papers.
  4. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo Group Munich.
  5. Straub, Stéphane, 2005. "Informal sector: The credit market channel," Journal of Development Economics, Elsevier, vol. 78(2), pages 299-321, December.
  6. Dutta, Indranil & Mishra, Ajit, 2005. "Inequality, Corruption, and Competition in the Presence of Market Imperfections," Working Paper Series RP2005/46, World Institute for Development Economic Research (UNU-WIDER).
  7. 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.
  8. GABSZEWICZ, Jean J. & THISSE, Jacques-François, . "Price competition, quality and income disparities," CORE Discussion Papers RP -370, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Shaked, Avner & Sutton, John, 1982. "Relaxing Price Competition through Product Differentiation," Review of Economic Studies, Wiley Blackwell, vol. 49(1), pages 3-13, January.
  10. Matsuyama, Kiminori, 2000. "Endogenous Inequality," Review of Economic Studies, Wiley Blackwell, vol. 67(4), pages 743-59, October.
  11. Dabla-Norris, Era & Gradstein, Mark & Inchauste, Gabriela, 2008. "What causes firms to hide output? The determinants of informality," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 1-27, February.
  12. 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.
  13. Sanjeev Gupta & Hamid Davoodi & Rosa Alonso-Terme, 2002. "Does corruption affect income inequality and poverty?," Economics of Governance, Springer, vol. 3(1), pages 23-45, 03.
  14. Rauch, James E., 1991. "Modelling the informal sector formally," Journal of Development Economics, Elsevier, vol. 35(1), pages 33-47, January.
  15. Pinaki Bose & Luciana Echazu, 2007. "Corruption with Heterogeneous Enforcement Agents in the Shadow Economy," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 163(2), pages 285-296, June.
  16. Rafael Di Tella & Alberto Ades, 1999. "Rents, Competition, and Corruption," American Economic Review, American Economic Association, vol. 89(4), pages 982-993, September.
  17. Besley, Timothy & McLaren, John, 1993. "Taxes and Bribery: The Role of Wage Incentives," Economic Journal, Royal Economic Society, vol. 103(416), pages 119-41, January.
  18. Cule, Monika & Fulton, Murray, 2005. "Some implications of the unofficial economy-bureaucratic corruption relationship in transition countries," Economics Letters, Elsevier, vol. 89(2), pages 207-211, November.
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