Shadow Economy, Tax Morale, Governance and Institutional Quality: A Panel Analysis

54 Pages Posted: 29 Jan 2007

See all articles by Benno Torgler

Benno Torgler

Yale University - Yale Center for International and Area Studies

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)

Date Written: February 2007

Abstract

This paper analyses how governance or institutional quality and tax morale affect the shadow economy, using an international country panel and also within country data. The literature strongly emphasizes the quantitative importance of these factors to understand the level and changes of shadow economy. However, the limited number of investigations use cross-sectional country data with a relatively small number of observations, and hardly any paper has investigated tax morale and provides evidence using within country data. Using more than 25 proxies that measure governance and institutional quality we find strong support that its increase leads to a smaller shadow economy. Moreover, an increase in tax morale reduces the size of the shadow economy.

Keywords: shadow economy, tax morale, governance quality, government intervention, corruption

JEL Classification: D73, D78, H2, H26, O17, O5

Suggested Citation

Torgler, Benno and Schneider, Friedrich G., Shadow Economy, Tax Morale, Governance and Institutional Quality: A Panel Analysis (February 2007). IZA Discussion Paper No. 2563, CESifo Working Paper Series No. 1923, Available at SSRN: https://ssrn.com/abstract=960012

Benno Torgler

Yale University - Yale Center for International and Area Studies ( email )

P.O. Box 208206
New Haven, CT 06520-8206
United States

HOME PAGE: http://www.crema-research.ch/fellowseiten/torgler.htm

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)

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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

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