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Shadow Economy, Tax Morale, Governance and Institutional Quality: A Panel Analysis

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  • Benno Torgler
  • Friedrich Schneider

Abstract

The following paper examines the different options to finance local public infrastructure in Ethiopia based on the assumption that the federal government of Ethiopia will not provide any guarantees for local borrowing. Besides a detailed description of the local public finance system and the capital market in Ethiopia, the paper also sets out some international successful practices in municipal infrastructure financing. Based on the observation of the Ethiopian case and the consideration of the international experiences, the paper has two major pillars that very specifically identify actions required for implementation. On the one hand, the paper recommends a number of feasible arrangements to generate a revenue enhancement of the local authorities in the existing intergovernmental framework. On the other hand, the paper suggests a solution - for creditworthy as well as for potentially creditworthy urban local governments (ULG) - to finance their future demand of public infrastructure together with the national finance institutions as well as the international donors.

Suggested Citation

  • Benno Torgler & Friedrich Schneider, 2007. "Shadow Economy, Tax Morale, Governance and Institutional Quality: A Panel Analysis," Working Papers 04-2007, Institute of Local Public Finance.
  • Handle: RePEc:lpf:wpaper:04-2007
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    More about this item

    Keywords

    Shadow economy; tax morale; governance quality; government intervention; corruption;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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