IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

The Influence of Direct Democracy on the Shadow Economy

  • Désirée Teobaldelli
  • Friedrich Schneider

We analyze, both theoretically and empirically, the influence of direct democratic institutions on the size and development of shadow economies. Our model suggests that, as the extent of direct democracy increases, implemented fiscal policies more nearly reflect the preferences of citizens and so reduce their incentives to operate in the informal sector. This theory implies a negative relationship between the extent of direct democracy and the size of the country’s shadow economy. We also theorize that direct democracy has a greater effect in reducing the informal sector when the former is at low or intermediate values and when the electoral system is characterized by a larger district magnitude. An empirical investigation of a sample of 57 democracies confirms our model’s predictions.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.econ.jku.at/papers/2013/wp1316.pdf
Download Restriction: no

Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2013-16.

as
in new window

Length: 32 pages
Date of creation: Jul 2013
Date of revision:
Handle: RePEc:jku:econwp:2013_16
Contact details of provider: Fax: +43 732-2468-8238
Web page: http://www.econ.jku.at/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Johnson, Simon & Kaufmann, Daniel & Zoido-Lobaton, Pablo, 1998. "Regulatory Discretion and the Unofficial Economy," American Economic Review, American Economic Association, vol. 88(2), pages 387-92, May.
  2. Frey, Bruno S, 1997. "A Constitution for Knaves Crowds Out Civic Virtues," Economic Journal, Royal Economic Society, vol. 107(443), pages 1043-53, July.
  3. Paldam, Martin, 2001. "Corruption and Religion Adding to the Economic Model," Kyklos, Wiley Blackwell, vol. 54(2-3), pages 383-413.
  4. Gordon Tullock, 1971. "The paradox of revolution," Public Choice, Springer, vol. 11(1), pages 89-99, September.
  5. Pommerehne, Werner W & Weck-Hannemann, Hannelore, 1996. "Tax Rates, Tax Administration and Income Tax Evasion in Switzerland," Public Choice, Springer, vol. 88(1-2), pages 161-70, July.
  6. Borooah, Vani K. & Paldam, Martin, 2007. "Why is the world short of democracy?: A cross-country analysis of barriers to representative government," European Journal of Political Economy, Elsevier, vol. 23(3), pages 582-604, September.
  7. Daron Acemoglu & Simon Johnson & James A. Robinson, 2001. "The Colonial Origins of Comparative Development: An Empirical Investigation," American Economic Review, American Economic Association, vol. 91(5), pages 1369-1401, December.
  8. 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.
  9. Sergio Galletta & Mario Jametti, 2012. "How to Tame two Leviathans? Revisiting the Effect of Direct Democracy on Local Public Expenditure," CESifo Working Paper Series 3982, CESifo Group Munich.
  10. Roberto Dell'Anno & Désirée Teobaldelli, 2012. "Keeping both Corruption and the Shadow Economy in Check: The Role of Decentralization," Working Papers 1213, University of Urbino Carlo Bo, Department of Economics, Society & Politics - Scientific Committee - L. Stefanini & G. Travaglini, revised 2012.
  11. Lars P. Feld & Bruno S. Frey, 2002. "Trust breeds trust: How taxpayers are treated," Economics of Governance, Springer, vol. 3(2), pages 87-99, 07.
  12. Martin Paldam & Erich Gundlach, 2007. "Two Views on Institutions and Development: The Grand Transition vs. the Primacy of Institutions," Kiel Working Papers 1315, Kiel Institute for the World Economy.
  13. Lawrence Blume & Jens Müller & Stefan Voigt, 2007. "The Economic Effects of Direct Democracy – A First Global Assessment," CESifo Working Paper Series 2149, CESifo Group Munich.
  14. 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.
  15. Lars P Feld & Gebhard Kirchgässner, 2001. "The political economy of direct legislation: direct democracy and local decision-making," Economic Policy, CEPR;CES;MSH, vol. 16(33), pages 329-367, October.
  16. Friedrich Schneider & Benno Torgler, 2007. "The impact of tax morale and institutional quality on the shadow economy," Economics working papers 2007-02, Department of Economics, Johannes Kepler University Linz, Austria.
  17. Matsusaka, John G, 1995. "Fiscal Effects of the Voter Initiative: Evidence from the Last 30 Years," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 587-623, June.
  18. Andrei Shleifer & Robert W. Vishny, 1998. "The Quality of Government," Harvard Institute of Economic Research Working Papers 1847, Harvard - Institute of Economic Research.
  19. Hug, Simon & Spörri, Franziska, 2011. "Referendums, trust, and tax evasion," European Journal of Political Economy, Elsevier, vol. 27(1), pages 120-131, March.
  20. Benno Torgler & Friedrich Schneider & Christoph A. Schaltegger, 2008. "Local Autonomy, Tax Morale and the Shadow Economy," CREMA Working Paper Series 2008-24, Center for Research in Economics, Management and the Arts (CREMA).
  21. Treisman, Daniel, 2000. "The causes of corruption: a cross-national study," Journal of Public Economics, Elsevier, vol. 76(3), pages 399-457, June.
  22. Frey, Bruno S, 1994. "Direct Democracy: Politico-economic Lessons from Swiss Experience," American Economic Review, American Economic Association, vol. 84(2), pages 338-42, May.
  23. Edward Glaeser & Giacomo Ponzetto & Andrei Shleifer, 2006. "Why Does Democracy Need Education?," NBER Working Papers 12128, National Bureau of Economic Research, Inc.
  24. Torgler, Benno, 2005. "Tax morale and direct democracy," European Journal of Political Economy, Elsevier, vol. 21(2), pages 525-531, June.
  25. Nadia Fiorino & Roberto Ricciuti, 2007. "Determinants of Direct Democracy," CESifo Working Paper Series 2035, CESifo Group Munich.
  26. Feld, Lars P & Tyran, Jean-Robert, 2002. "Tax Evasion and Voting: An Experimental Analysis," Kyklos, Wiley Blackwell, vol. 55(2), pages 197-222.
  27. Thomas Romer & Howard Rosenthal, 1978. "Political resource allocation, controlled agendas, and the status quo," Public Choice, Springer, vol. 33(4), pages 27-43, December.
  28. Matsusaka, John G & McCarty, Nolan M, 2001. "Political Resource Allocation: Benefits and Costs of Voter Initiatives," Journal of Law, Economics and Organization, Oxford University Press, vol. 17(2), pages 413-48, October.
  29. Feld, Lars P & Kirchgassner, Gebhard, 2001. "Does Direct Democracy Reduce Public Debt? Evidence from Swiss Municipalities," Public Choice, Springer, vol. 109(3-4), pages 347-70, December.
  30. John Ferejohn, 1986. "Incumbent performance and electoral control," Public Choice, Springer, vol. 50(1), pages 5-25, January.
  31. Désirée Teobaldelli, 2011. "Federalism and the shadow economy," Public Choice, Springer, vol. 146(3), pages 269-289, March.
  32. Pommerehne, Werner W & Schneider, Friedrich, 1978. "Fiscal Illusion, Political Institutions, and Local Public Spending," Kyklos, Wiley Blackwell, vol. 31(3), pages 381-408.
  33. Morris Silver, 1974. "Political revolution and repression: An economic approach," Public Choice, Springer, vol. 17(1), pages 63-71, March.
  34. Klarita Gërxhani, 2004. "The Informal Sector in Developed and Less Developed Countries: A Literature Survey," Public Choice, Springer, vol. 120(3_4), pages 267-300, 09.
  35. Blomberg, S.B. & Hess, G.D., 1999. "The Impact of Voter Initiatives on Economic Activity," Papers 99-11, Wellesley College - Department of Economics.
  36. Feld, Lars P. & Matsusaka, John G., 2003. "Budget referendums and government spending: evidence from Swiss cantons," Journal of Public Economics, Elsevier, vol. 87(12), pages 2703-2724, December.
  37. Robert Barro, 1973. "The control of politicians: An economic model," Public Choice, Springer, vol. 14(1), pages 19-42, March.
  38. John G. Matsusaka, 2005. "Direct Democracy Works," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 185-206, Spring.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:jku:econwp:2013_16. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (René Böheim)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.