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

Posted: 2 Sep 2001

See all articles by Eric Friedman

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

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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. Journal of Public Economics, Vol. 76, No. 3. Available at SSRN: https://ssrn.com/abstract=281619

Eric Friedman

Cornell University - Operations Research & Industrial Engineering ( email )

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Simon Johnson (Contact Author)

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

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National Bureau of Economic Research (NBER)

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Daniel Kaufmann

Natural Resource Governance Institute (NRGI) ( email )

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The Brookings Institution ( email )

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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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