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The Impact of Banking Development on the Size of the Shadow Economy

Author

Listed:
  • Niloy Bose

    (Department of Economics, University of Wisconsin)

  • Salvatore Capasso

    (Department of Economics, University of Naples 'Parthenope', and CSEF)

  • Martin Wurm

    (Department of Economics, University of Wisconsin)

Abstract

This paper employs data on 119 countries for the period 1999/2000 to 2004/2005 to examine the impact of banking development on the size of shadow economies. The main results indicate that an improvement in the development of the banking sector is associated with a smaller shadow economy in a wide cross-section of countries. In addition, both depth and efficiency of the banking sector matter equally in reducing the size of a shadow economy. These stylized results are robust under a variety of specifications and controls for simultaneity bias.

Suggested Citation

  • Niloy Bose & Salvatore Capasso & Martin Wurm, 2008. "The Impact of Banking Development on the Size of the Shadow Economy," CSEF Working Papers 207, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    • Handle: RePEc:sef:csefwp:207
    as

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    File URL: http://www.csef.it/WP/wp207.pdf
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    References listed on IDEAS

    as
    1. World Bank, 2004. "World Development Indicators 2004," World Bank Publications - Books, The World Bank Group, number 13890.
    2. World Bank, 2000. "World Development Indicators 2000," World Bank Publications - Books, The World Bank Group, number 13828.
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    Cited by:

    1. Catalina Granda Carvajal, 2015. "Informality and macroeconomic volatility: do credit constraints matter?," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 42(6), pages 1095-1111, November.
    2. Blackburn, Keith & Bose, Niloy & Capasso, Salvatore, 2012. "Tax evasion, the underground economy and financial development," Journal of Economic Behavior & Organization, Elsevier, vol. 83(2), pages 243-253.
    3. Yilmaz Bayar & Omer Faruk Ozturk, 2016. "Financial Development and Shadow Economy in European Union Transition Economies," Managing Global Transitions, University of Primorska, Faculty of Management Koper, vol. 14(2 (Summer), pages 157-173.
    4. Berdiev, Aziz N. & Saunoris, James W., 2016. "Financial development and the shadow economy: A panel VAR analysis," Economic Modelling, Elsevier, vol. 57(C), pages 197-207.
    5. Bittencourt, Manoel & Gupta, Rangan & Stander, Lardo, 2014. "Tax evasion, financial development and inflation: Theory and empirical evidence," Journal of Banking & Finance, Elsevier, vol. 41(C), pages 194-208.
    6. Salvatore Capasso & Stefano Monferrà & Gabriele Sampagnaro, 2015. "The Shadow Economy and Banks’ Lending Technology," CSEF Working Papers 422, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    7. Misbah Kiani & Adeel Ahmed & Khalid Zaman, 2015. "Combining qualitative and quantitative approaches for measuring underground economy of Pakistan," Quality & Quantity: International Journal of Methodology, Springer, vol. 49(1), pages 295-317, January.
    8. Nicoletta Batini & Paul Levine & Emanuela Lotti & Bo Yang, 2011. "Informality, Frictions and Monetary Policy," School of Economics Discussion Papers 0711, School of Economics, University of Surrey.
    9. Imamoglu, Hatice, 2017. "Estimating the roles of financial sector development and international trade openness in underground economies: Evidence from the European Union," Economics Discussion Papers 2017-50, Kiel Institute for the World Economy (IfW Kiel).

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    JEL classification:

    • H - Public Economics
    • G - Financial Economics

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