Corruption and the shadow economy
This paper develops a simple framework to analyze the links between corruption and the unofficial economy and their implications for the official economy. In a model of self-selection with heterogeneous entrepreneurs, we show that the entrepreneurs' option to flee to the underground economy constrains a corrupt official's ability to introduce distortions to the economy for private gains. The unofficial economy thus mitigates government-induced distortions and, as a result, leads to enhanced economic activities in the official sector. In this sense, the presence of the unofficial sector acts as a complement to the official economy rather than a substitute.
|Date of creation:||2003|
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- Choi, Jay Pil & Thum, Marcel, 2003.
"The dynamics of corruption with the ratchet effect,"
Journal of Public Economics,
Elsevier, vol. 87(3-4), pages 427-443, March.
- Jay Pil Choi & Marcel Thum, 2000. "The Dynamics of Corruption with the Ratchet Effect," CESifo Working Paper Series 334, CESifo Group Munich.
- Choi, Jay Pil & Thum, Marcel, 2001. "The dynamics of corruption with the Ratchet effect," Dresden Discussion Paper Series in Economics 04/01, Dresden University of Technology, Faculty of Business and Economics, Department of Economics.
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- Thierry Verdier & Daron Acemoglu, 2000.
"The Choice between Market Failures and Corruption,"
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- Simon Johnson & Daniel Kaufman & Andrei Shleifer, 1997. "The Unofficial Economy in Transition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 28(2), pages 159-240.
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