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Corruption and the Shadow Economy: A Structural Equation Model Approach

Author

Listed:
  • Buehn, Andreas

    (Institute for Advanced Sustainability Studies (IASS))

  • Schneider, Friedrich

    (University of Linz)

Abstract

The relationship between corruption and the shadow economy is not clear. Theoretically, they either substitute or complement each other – exhibiting either a negative or positive relationship. This paper – using a structural equation model with two latent variables – extracts information on various dimensions of corruption and the shadow economy to contribute to the debate on their relationship. It presents empirical evidence of a positive relationship between the shadow economy and corruption. The results show that the shadow economy influences corruption more than corruption influences the shadow economy.

Suggested Citation

  • Buehn, Andreas & Schneider, Friedrich, 2009. "Corruption and the Shadow Economy: A Structural Equation Model Approach," IZA Discussion Papers 4182, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp4182
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    File URL: https://docs.iza.org/dp4182.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    shadow economy; corruption; SEM models;
    All these keywords.

    JEL classification:

    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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