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Dodging the Grabbing Hand: The Determinants of Unofficial Activity in 69

Author

Listed:
  • Eric Friedman

    () (Rutgers University)

  • Simon Johnson

    () (MIT)

  • Daniel Kaufmann

    (The World Bank)

  • Pablo Zoido-Lobaton

    (The World Bank)

Abstract

Across 69 countries, higher tax rates are associated with less unofficial activity as a percent of GDP but corruption is associated with more unofficial activity. Entrepreneurs go underground not to avoid official taxes but to reduce the burden of bureaucracy and corruption. Dodging the "Grabbing Hand" in this way reduces tax revenues as a percent of both official and total GDP. As a result, corrupt governments become small governments and only relatively uncorrupt governments can sustain high tax rates.

Suggested Citation

  • Eric Friedman & Simon Johnson & Daniel Kaufmann & Pablo Zoido-Lobaton, 1999. "Dodging the Grabbing Hand: The Determinants of Unofficial Activity in 69," Departmental Working Papers 199921, Rutgers University, Department of Economics.
  • Handle: RePEc:rut:rutres:199921
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    Citations

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    Cited by:

    1. Friedrich Schneider, 2000. "Illegal Activities, but Still Value Added Ones (?): Size, Causes, and Measurement of the Shadow Economies all over the World," CESifo Working Paper Series 305, CESifo Group Munich.
    2. Friedrich Schneider & Christina Burger, 2005. "Formal and Informal Labour Markets: Challenges and Policy in the Central and Eastern European New EU Members and Candidate Countries," CESifo Economic Studies, CESifo, vol. 51(1), pages 77-115.
    3. Friedrich Schneider, 2003. "The Size and Development of the Shadow Economy around the World and Relation to the Hard-to-Tax," International Center for Public Policy Working Paper Series, at AYSPS, GSU paper0324, International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
    4. Friedrich Schneider, 2003. "The Development of the Shadow Economies and Shadow Labour Force of 21 OECD and 22 Transition Countries," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 1(1), pages 17-23, 02.
    5. Friedrich Schneider & Dominik Enste, 1999. "Shadow Economies Around the World - Size, Causes, and Consequences," CESifo Working Paper Series 196, CESifo Group Munich.
    6. Sabine Bernabe, 2002. "Informal Employment in Countries in Transition: A conceptual framework," CASE Papers case56, Centre for Analysis of Social Exclusion, LSE.
    7. Róbert Veszteg, 2005. "Linking Decisions with Moments," Faculty Working Papers 11/05, School of Economics and Business Administration, University of Navarra.
    8. Jay Pil Choi & Marcel Thum, 2005. "Corruption And The Shadow Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(3), pages 817-836, August.
    9. Kemal, M. Ali, 2007. "Fresh Assessment of the Underground Economy and Tax Evasion in Pakistan: Causes, Consequences, and Linkages with the Formal Economy," MPRA Paper 2226, University Library of Munich, Germany.
    10. Loayza, Norman V. & Rigolini, Jamele, 2006. "Informality trends and cycles," Policy Research Working Paper Series 4078, The World Bank.
    11. Schneider, Friedrich, 2002. "The Size and Development of the Shadow Economies of 22 Transition and 21 OECD Countries," IZA Discussion Papers 514, Institute for the Study of Labor (IZA).
    12. Enste, Dominik H., 2004. "Schattenwirtschaft und Korruption in Mittel- und Osteuropa," IW-Trends – Vierteljahresschrift zur empirischen Wirtschaftsforschung, Institut der deutschen Wirtschaft Köln (IW) / Cologne Institute for Economic Research, vol. 31(1), pages 68-73.
    13. Bernabe, Sabine, 2002. "Informal employment in countries in transition: a conceptual framework," LSE Research Online Documents on Economics 6389, London School of Economics and Political Science, LSE Library.
    14. Mark E. Schaffer & Gerard Turley, 2000. "Effective versus Statutory Taxation: Measuring Effective Tax Administration in Transition Economies," William Davidson Institute Working Papers Series 347, William Davidson Institute at the University of Michigan.
    15. repec:ces:ifodic:v:1:y:2003:i:1:p:14567827 is not listed on IDEAS
    16. Belal Fallah, 2014. "The Pros and Cons of Formalizing Informal MSES in the Palestinian Economy," Working Papers 893, Economic Research Forum, revised Dec 2014.

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