Pollution, shadow economy and corruption: Theory and evidence

Amit K. Biswas, Mohammad Reza Farzanegan () and Marcel Thum

Ecological Economics, 2012, vol. 75, issue C, 114-125

Abstract: We study how the shadow economy affects pollution and how this effect depends on corruption levels in public administration. Production in the shadow economy allows firms to avoid environmental regulation policies; a large informal sector may be accompanied by higher pollution levels. Our theoretical model predicts that controlling the levels of corruption can limit the effect of the shadow economy on pollution. We use panel data covering the period from 1999 to 2005 in more than 100 countries to test this theoretical prediction. Our estimates confirm that the relationship between the shadow economy and the levels of pollution are dependent on the levels of corruption. Our results hold when we control for the effects of other determinants of pollution, time varying common shocks, country-fixed effects and various additional covariates.

Keywords: Environmental pollution; Shadow economy; Corruption; Panel data (search for similar items in EconPapers)
JEL-codes: Q53 Q56 Q58 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (124)

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Related works:
Working Paper: Pollution, Shadow Economy and Corruption: Theory and Evidence (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolec:v:75:y:2012:i:c:p:114-125

DOI: 10.1016/j.ecolecon.2012.01.007

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