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

Listed author(s):
  • 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)

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.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 207.

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Date of creation: 15 Oct 2008
Publication status: Published in Journal of Economic Studies, Vol. 39, pp. 620-628.
Handle: RePEc:sef:csefwp:207
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