Public Choice

, Volume 144, Issue 1, pp 215–238

Corruption and the shadow economy: an empirical analysis

Authors

    • Center for European, Governance and Economic Development Research (cege)Georg-August University Goettingen
    • KOF Swiss Economic Institute
    • IZA
    • CESifo
  • Friedrich Schneider
    • Department of EconomicsUniversity of Linz
Open AccessArticle

DOI: 10.1007/s11127-009-9513-0

Cite this article as:
Dreher, A. & Schneider, F. Public Choice (2010) 144: 215. doi:10.1007/s11127-009-9513-0

Abstract

This paper analyzes the influence of the shadow economy on corruption and vice versa. We hypothesize that corruption and the shadow economy are substitutes in high income countries while they are complements in low income countries. The hypotheses are tested for a cross-section of 98 countries. Our results show that there is no robust relationship between corruption and the size of the shadow economy when perceptions-based indices of corruption are used. Employing an index of corruption based on a structural model, however, corruption and the shadow economy are complements in countries with low income, but not in high income countries.

Keywords

CorruptionShadow economyRegulationTax burden

JEL Classification

D73H2601705
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Copyright information

© The Author(s) 2009