The Changing Nature of the OECD Shadow Economy

Maurizio Bovi () and Roberto Dell'Anno ()

No 81, ISAE Working Papers from ISAE - Institute for Studies and Economic Analyses - (Rome, ITALY)

Abstract: As recently suggested, the shadow economy and its determinants (taxation, regulations, corruption, etc.) are linked such that just two stable equilibria are possible. In the good one there is a small hidden sector, large fiscal revenues and honest/appreciated institutions. The other (bad) equilibrium is quite the opposite. Our paper examines the links between these variables in relatively uncorrupt systems. Unlike the mainstream literature, we suggest that a continuum of SE equilibrium rates can emerge and that taxation and underground activities can be positively correlated. Empirical evidence for OECD countries broadly supports the model.

Keywords: shadow economy; multiple equilibria; taxation; rule of law. (search for similar items in EconPapers)
JEL-codes: H26 K42 O17 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-law, nep-pbe and nep-reg
Date: 2007-04
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Persistent link: http://EconPapers.repec.org/RePEc:isa:wpaper:81

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