Beyond the Veil of Ignorance: The Influence of Direct Democracy on the Shadow Economy

41 Pages Posted: 5 Mar 2012

See all articles by Friedrich Schneider

Friedrich Schneider

Johannes Kepler University Linz - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research); Institute for the Study of Labor (IZA)

Désirée Teobaldelli

University of Urbino

Date Written: February 29, 2012

Abstract

In this paper we analyze the influence of direct democratic institutions on the size and development of the shadow economies. The framework developed predicts a negative relationship between the degree of direct democracy and the size of the shadow economy. Countries where direct democratic institutions support democratic life are expected to be characterized by a lower informal sector, ceteris paribus. The empirical / econometric investigation of a sample of 56 democracies confirms our core hypothesis and demonstrates that the effect of direct democratic institutions on the shadow economy is negative and quantitatively important; the results are robust and also depend on the interaction of direct democracy with other political institutions, such as district magnitude.

Keywords: shadow economy, direct democratic institutions, district magnitude, good governance

JEL Classification: O170, D780, H110, H260

Suggested Citation

Schneider, Friedrich G. and Teobaldelli, Désirée, Beyond the Veil of Ignorance: The Influence of Direct Democracy on the Shadow Economy (February 29, 2012). CESifo Working Paper Series No. 3749. Available at SSRN: https://ssrn.com/abstract=2016074

Friedrich G. Schneider (Contact Author)

Johannes Kepler University Linz - Department of Economics ( email )

Altenbergerstrasse 69
A-4040 Linz, 4040
Austria
+43 732 2468 8210 (Phone)
+43 732 2468 8208 (Fax)

CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Institute for the Study of Labor (IZA)

P.O. Box 7240
Bonn, D-53072
Germany

Désirée Teobaldelli

University of Urbino ( email )

Via Saffi 2
Urbino, Pesaro-Urbino 61029
Italy

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