Dodging the Grabbing Hand: The Determinants of Unofficial Activity in 69 Countries
Cornell University - Operations Research & Industrial Engineering
Massachusetts Institute of Technology (MIT) - Entrepreneurship Center; National Bureau of Economic Research (NBER)
The Brookings Institution
Stanford University - Graduate School of Business
Journal of Public Economics, Vol. 76, No. 3
Across 69 countries, higher tax rates are associated with less unofficial activity as a percent of GDP but corruption is associated with more unofficial activity. Entrepreneurs go underground not to avoid official taxes but to reduce the burden of bureaucracy and corruption. Dodging the Grabbing Hand in this way reduces tax revenues as a percent of both official and total GDP. As a result, corrupt governments become small governments and only relatively uncorrupt governments can sustain high tax rates.
JEL Classification: H26,K42,O17,O1,O17,P5,M5,K0,H0,H1,C42Accepted Paper Series
Date posted: September 2, 2001
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