Dodging the Grabbing Hand: The Determinants of Unofficial Activity in 69 Countries

Conference Paper, The Nobel Symposium in Economics - The Economics of Transition, Stockholm, September 1999

47 Pages Posted: 17 Nov 1999  

Eric Friedman

Cornell University - Operations Research & Industrial Engineering

Simon Johnson

Massachusetts Institute of Technology (MIT) - Entrepreneurship Center; National Bureau of Economic Research (NBER)

Daniel Kaufmann

Natural Resource Governance Institute (NRGI); The Brookings Institution

Pablo Zoido

Stanford University - Graduate School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: August 1999

Abstract

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,C42

Suggested Citation

Friedman, Eric and Johnson, Simon and Kaufmann, Daniel and Zoido, Pablo, Dodging the Grabbing Hand: The Determinants of Unofficial Activity in 69 Countries (August 1999). Conference Paper, The Nobel Symposium in Economics - The Economics of Transition, Stockholm, September 1999. Available at SSRN: https://ssrn.com/abstract=194628 or http://dx.doi.org/10.2139/ssrn.194628

Eric Friedman

Cornell University - Operations Research & Industrial Engineering ( email )

237 Rhodes Hall
Ithaca, NY 14853
United States
607-255-9130 (Phone)
607-255-9129 (Fax)

Simon Johnson (Contact Author)

Massachusetts Institute of Technology (MIT) - Entrepreneurship Center ( email )

United States
617-253-8412 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Daniel Kaufmann

Natural Resource Governance Institute (NRGI) ( email )

80 Broad Street
New York, NY 10004
United States

HOME PAGE: http://www.resourcegovernance.org

The Brookings Institution ( email )

1775 Massachusetts Avenue, NW
Washington, DC 20036
United States

HOME PAGE: http://www.brookings.edu/experts/kaufmannd

Pablo Zoido

Stanford University - Graduate School of Business ( email )

Stanford, CA 94305
United States

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