Corruption and the Shadow Economy: A Structural Equation Model Approach
41 Pages Posted: 26 May 2009
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.
Keywords: shadow economy, corruption, SEM models
JEL Classification: O17, O5, D78, H11, H26
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