Academic
Publications
How do institutions affect corruption and the shadow economy?

How do institutions affect corruption and the shadow economy?,10.1007/s10797-008-9089-5,International Tax and Public Finance,Axel Dreher,Christos Kots

How do institutions affect corruption and the shadow economy?   (Citations: 21)
BibTex | RIS | RefWorks Download
This paper analyzes a simple model that captures the relationship between institutional quality, the shadow economy, and corruption. It shows that an improvement in institutional quality reduces the shadow economy and affects the corruption market. The exact relationship between corruption and institutional quality is, however, ambiguous and depends on the relative effectiveness of institutional quality in the shadow and corruption markets. The analytics also show that the shadow economy and corruption are substitutes. The predictions of the model are empirically tested and confirmed.
Journal: International Tax and Public Finance - INT TAX PUBLIC FINANC , vol. 16, no. 6, pp. 773-796, 2009
Cumulative Annual
View Publication
The following links allow you to view full publications. These links are maintained by other sources not affiliated with Microsoft Academic Search.
    • ...Our analysis provides a possible explanation for the paradoxical empirical findings of, for example, Friedman et al. (2000), Dreher et al. (2009 )a nd Virta (2010) that there exists a negative correlation between the size of the informal sector and the tax burden on formal firms or the level of corruption...
    • ...Our theoretical predictions match the empirical evidence provided by Dreher et al. (2009) and Virta (2010)...
    • ...This result provides a possible answer to the question originating in the empirical finding of Friedman et al. (2000): “Why does the informal sector shrink as a tax burden on formal firms increases?” More recently, Dreher et al. (2009 )a nd Virta (2010) have empirically shown that the informal sector and corruption are substitutes...

    Hideaki Gotoet al. Labor market competitiveness and the size of the informal sector

    • ...As we review in the next section, previous literature on corruption suggests that corrupt bureaucrats influence entrepreneurs’ investment and production choices as they significantly alter the costs and returns from investing in the formal and informal sectors 2 (Johnson et al. 1997; Choi and Thum 2003, 2005; Dreher and Schneider 2010; Dreher et al. 2009)...
    • ...Alternatively, Choi and Thum (2005) and Dreher et al. (2009) present two models where the unofficial sector and corruption are shown to be substitutes...
    • ...Dreher et al. (2009) reach a similar conclusion on the relationship between corruption and the informal sector using an extended version of the model that accounts for institutional quality...
    • ...As a consequence, these models suggest the unofficial sector is a substitute for corruption rather than a complement (Choi and Thum 2005; Dreher et al. 2009)...

    Francisco Azpitarte. Can corruption constrain the size of governments?

    • ...Building on Choi and Thum, Dreher et al. (2005)...

    Heli Virta. The linkage between corruption and shadow economy size: does geography...

    • ...However, it is a way of interpreting this kind of phenomenon representative of the mainstream economy theory, adopted by several authors working within such a framework (Choi and Thum 2005; Dreher et al. 2008)...

    Sergio Salvatoreet al. Mainstream Economics and SenseMaking

    • ...lower informality [Johnson, Kaufmann and Zoido-Lobaton (1998); Friedman, Johnson, Kaufmann and Zoido-Lobaton (2000); Dreher et al. (2005)]...

    Diego Rei. The Impact of Institutions and Policy on Informal Economy in Developin...

Sort by: