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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
    as

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