Corruption and the Shadow Economy: An Empirical Analysis

42 Pages Posted: 23 Feb 2006

See all articles by Axel Dreher

Axel Dreher

Heidelberg University

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)

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Date Written: January 2006

Abstract

This paper analyzes the influence of the shadow economy on corruption and vice versa. We hypothesize that corruption and shadow economy are substitutes in high income countries while they are complements in low income countries. The hypotheses are tested for a cross-section of 120 countries and a panel of 70 countries for the period 1994-2002. Our results show that the shadow economy reduces corruption in high income countries, but increases corruption in low income countries. We also find that stricter regulations increase both corruption and the shadow economy.

Keywords: corruption, shadow economy, regulation, tax burden

JEL Classification: D73, H26, O17, O5

Suggested Citation

Dreher, Axel and Schneider, Friedrich G., Corruption and the Shadow Economy: An Empirical Analysis (January 2006). CESifo Working Paper Series No. 1653, Available at SSRN: https://ssrn.com/abstract=886490

Axel Dreher

Heidelberg University ( email )

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HOME PAGE: http://www.axel-dreher.de

Friedrich G. Schneider (Contact Author)

Johannes Kepler University Linz - Department of Economics ( email )

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